STEVE:  Hi, this is Steve Westmark.  Thanks so much for watching my video blog this week.  I invited back Al Gelschus from Guaranteed Rate Mortgage to talk to us today about FHA rehab programs.

AL:  Thanks, Steve.  In today’s world where we have a lot of homes that are being listed for sale that had been through foreclosure or other distressed situations, the FHA rehab program is an excellent way to approach a problem where you might have a home that does not have appliances or carpet and still get by with a minimum down payment loan that FHA provides.  But in addition to that, you can get the financing with your one first mortgage to have some of that work done up front.

The FHA Streamline Program allow it to be very effortless in the sense that you don’t need contractors and those kind of folks to assist you with it.  You do need to work with an FHA consultant.  You do need to work with appropriate bids and that kind of thing so you have enough money to make sure you have the project completed.  But it’s an outstanding way of getting your home, getting it fixed up to your standards and then having a good 30-year fixed FHA mortgage with it.

STEVE:  So, Al, give me kind of a short synopsis of an application.  I knew of a house that was in Minnetonka that was stripped of appliances and had some minor problems.  Maybe needed carpet and paint and things like that.  I could buy it for $150,000.  It was probably worth $250,000, but it needed a lot of work.  How does this type of program work that they’re able to get the monies to buy it for $150,000 and yet still be able to get the mortgage?

AL:  What we would do is we’d hire an FHA consultant at a very nominal fee.  Sometimes that consultant can actually do the inspection as well, and you kill two birds with one stone.  Consultant goes out and evaluates the property for FHA acceptability and also looks at the work that you want to have done on the property.  Gives you a list of instructions that you can go out and get bids for.  For instance, on appliances you can pick one of the national vendors and go out and get some quotes on what those appliances might be worth.

 All that information is turned over to the consultant, and the consultant then prepares a write-up.  An appraiser then goes out to the property and appraises the property as is to make sure that you’re paying a fair price for it as listed right now and it has to be completed so that when the work is finished then you’ve actually got the value that you’re looking for.  The loan then is funded after you’ve been approved and you can proceed with the work. You’ve got up to six months to finish the work, but it does have to be done within that time frame.

When you’re finished, you have a nice new home, and it’s been updated according to what you’d like to get done.

STEVE:  Well, Al, this is a great and exceptional program because you’re able to buy some of these distressed properties that are out there from banks for some excellent values, get them fixed up, and do you know of any instances that you’ve seen where people have done this and then seen quite a return at a later date?

AL:  Yes, Steve.  We actually closed on a loan three months ago here in Minnetonka where the buyer purchased the home for $150,000, put $30,000 worth of work into the property, and he has not yet sold it, but it appraised for $225,000.  So he had a significant pickup in equity based on today’s market.  If the market gets better over the next few years, as we all assume that it will, he’ll have an excellent gain on sale.

STEVE:  Well, thanks again for watching this week, and thanks Al for coming in.  It’s a great opportunity in the marketplace today for the bank-owned properties and also a way to make a great return on investment.  And thanks for bringing us this program that can help people make money in real estate.