How to Renovate Foreclosed Homes – Roanoke, VA

You probably know how the process usually works when purchasing a home with a traditional loan. Once the buyer finds the home they want, it’s appraised – then inspected. The lender oForeclosed Homenly approves the loan if the property meets the requirements in value AND condition. In the case of foreclosures, usually the appraised value will be much higher than the selling price, mainly because the seller simply needs to get out from under the debt. So…what do you do when the home won’t pass inspection?

Unless you have an endless supply of cash lying around…start looking at the next best thing…a Renovation Loan (FHA 203k)!!

In the current market many foreclosures sit on the market in disrepair due to neglect. Those properties are considered poor collateral that lenders would normally they’d prefer not to lend on.  However, for Renovation loans the loan is based on the after-repair value (not current value) and includes an escrow account to complete the repairs needed in order to bring the house to a condition that lenders prefer. This means that the current condition of the property is not as important as the condition of the property after the renovation is complete. This provides an outlet to purchase dilapidated properties, many of which have spent extended periods on the market due to the lack of availability to traditional financing, and solves the problem that most lenders face when dealing with property in disrepair. What this means to the home buyer is generally a significant discount to “as-is” value and, quite often, a fantastic deal on the house.

Now, there are 2 types of FHA 203k Renovation loans…how do you know which to choose? 

money_treeIf your repairs DO NOT require structural repairs OR they are less than $35,000, then you would want the loan known as a Streamline FHA 203K. With this loan you will have two draws (cash disbursements) after closing. Generally, the lender will release 50% upfront and 50% when the work is completed. On most of these the lender will require a final inspection to make sure the work is complete, but on some of the more simple renovations you can provide receipts showing materials have been purchased and that will be sufficient.

The other type is for those homes needing structural repair OR they are over $35,000. These are known as full FHA 203K and the process entails a little more effort.  Many times, when more extensive repair is involved, it’s wise to involve an architect and get architectural drawings so the contractor bids and appraisal are as accurate as possible.  A HUD approved 203K consultant will also be assigned to help determine repairs and administer draws.postit buy now

Essentially Renovation Loan products can establish equity for the future in the home that is being purchased. While the market is low, BUY these homes at a ‘bargain’ price, renovate it, and then enjoy the financial rewards it will provide when the market comes back.  As the property values recover, your home equity will increase substantially.


We take great joy in helping assemble your renovation team and watch you take advantage of the opportunities today’s market has provided.  Feel free to call or email anytime & let’s get to work!


Josh Perrington – FHA 203k Renovation Sr. Mortgage Planner | | 540.904.0842 | Roanoke, VA


~ by joshperrington on December 1, 2008.

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