How to Buy a Fixer - Upper

In today's market place, many listings are REO's or bank owned homes that were foreclosed on because the homeowner couldn't afford to make the payments. More often than not, these homes need some repair and modernization to bring the home up to market standards. Many have structural issues that need correcting before a bank will lend to purchase. This presents a dilemma as many banks are losing large amounts of money on the sale and do not want to sink more money in a losing situation.

Options include paying cash for the home, which limits the market as most homebuyers in today's marketplace do not possess the funds to purchase a home for cash. Option two, the FHA 203k, the 203k is a rehabilitation loan offered by HUD to modernize and bring homes up to FHA standards. This loan allows the buyer to finance the rehabilitation into the purchase with a minimal down payment. The formula is as follows: purchase price, plus rehabilitation cost, equals adjusted gross sales price. The loan amount is ninety-six and a half percent of the adjusted gross sales price. That's right, you can purchase and rehabilitate a home with three and a half percent down.

The FHA 203k is an excellent option for financing when buying a fixer-upper, which is a fantastic way to build instant equity. Building instant equity in today's market makes buying fixer-uppers a great investment.