Painting Columbus homes for saleMany Columbus Homes for Sale are in need of repair. It is very common that foreclosed houses get damaged while they are vacant.

Savvy home buyers see an opportunity when a house for sale is not in perfect condition, because motivated sellers will accept lower purchase offers to get rid of a property that’s not move-in ready.

Common Home Buyer Questions

  • How can you pay for these repairs?
  • Does the money have to come out of the buyer’s pocket?
  • Can you finance the repairs with a mortgage when you purchase the home?

Many foreclosed Columbus homes are sold as-as. If they are bank or HUD owned, the seller will not make any repairs. Instead, the owner will discount the sales price to create an incentive for investors or owner occupant buyers to make the needed repairs themselves, after they closed on the purchase.

Repair Costs Can Be Added To Your Mortgage

The buyer does not always have to come out-of-pocket to pay for repairs. There are loans that allow for a “repair escrow”, which covers the cost of the rehabilitation of the property.

Many lenders offer so-called rehab loans The loan amount is based on the after-repair value of a property, not the purchase price. Most of rehab loans require a substantial down payment, usually 20 to 25%.

To keep your down payment to a minimum, you should apply for an FHA 203k rehab loan or an FHA loan with a repair escrow. While FHA 203k loans are available for any type of home, the FHA loan with a repair escrow can only be used to purchase HUD homes. This is one of the main advantages of buying a HUD house that needs minor (less than $5,000) in repairs.

This repair escrow is only available for owner occupant buyers of HUD homes that use FHA financing!

Both home buyers and real estate agents are confused by the “repair escrow” offered with HUD listings. Here’s how it works …

Buying A HUD Home With Repair Escrow

Let’s say a HUD property is listed for $50,000 with a repair escrow of $1,000.

If you buy this house for $50,000, your FHA loan amount will be 96.5% of the purchase price ($48,250). You have to pay 3.5% cash as a down-payment.

To cover the cost of repairs, your lender will increase the FHA loan amount by the repair escrow. So your total loan amount will be $49,250 ($48,250 + $1,000).

You are responsible for completing the repairs. You can hire a contractor or do them yourself.

When you are done, your lender will inspect the work. If it’s approved, the lender will reimburse the escrow amount. You will get a check for $1,000.

This means that you can add the cost of repairs to the loan amount, however, you have to complete and pre-pay the repairs, before the bank will disburse the escrow.