Help your clients locate a loan that works best for them
By Marki Lemons-Ryhal, CRS
As a REALTOR®, you want to ensure that the buyer has financing in place before you dedicate your time and effort searching for prospective properties. If the buyer is using bank financing, you will most likely request a pre-qualification or pre-approval letter from the financing institution. You can help guide your clients to the best loan options.
Purchase rehab loan
The 203(k) program is HUD’s primary loan program for the rehabilitation and repair of single-family properties. It is an integral tool for community/neighborhood revitalization and for expanding homeownership opportunities. Many lenders have successfully used the 203(k) program in partnership with state and local housing agencies and nonprofit organizations to rehabilitate properties.
The 203(k) loan allows a borrower to finance the acquisition and rehabilitation of property into one loan. The total loan amount is based on the ARV (after-repair-value) of the property. FHA requires the buyer to put down 3.5 percent of the purchase/rehab loan amount.
For example: Assume that your client would like to purchase a home for $50,000 and the home is in need of repairs that cost $40,000. The purchase rehab amount is $90,000, and the buyer would need 3.5 percent of $90,000 ($3,150) for their down payment.
Hard money lender
Hard money financing is available for some investors seeking financing for rehab projects. These loans can be beneficial to investors who are unable to obtain financing from other conventional sources. Hard money financing is intended to be short-term because of the higher interest rates and costs associated with the loans. 
How the program can be used
The 203(k) can be used to accomplish rehabilitation and/or improvement of an existing one-to-four-unit dwelling in one of three ways:
1. To purchase a dwelling and the land on which the dwelling is located and rehabilitate it.
2. To purchase a dwelling on another site, move it onto a new foundation on the mortgaged property and rehabilitate it.
3. To refinance existing indebtedness and rehabilitate such a dwelling.
Depending on the repair cost, FHA offers two renovation financing vehicles: FHA 203(k) Streamline and the regular FHA 203(k):
FHA 203(k) Streamline: The Streamlined FHA Rehab loan is a newer product designed to save the homebuyer money by not requiring a consultant. A contractor can bid on the work if it is less than $35,000 and relatively simple.
FHA 203(k): The regular (k) is used for renovation projects that exceed $35,000. However, it can be used for smaller projects as well, with a minimum of $5,000 in renovation costs.
