FHA program offers housing bright spot

While the housing market has certainly seen better days, one of the bright spots is for first-time homebuyers. With so many foreclosed homes on the market, along with new government programs, now is the best time for people to buy their first home.

The 203(k) program from the Federal Housing Administration (FHA), which is part of the Department of Housing and Urban Development (HUD), http://www.hud.gov">www.hud.gov, is designed for the rehabilitation and repair of single-family homes.

Like most government programs, there are numerous stipulations, and the process can be confusing. However, there is one company, Home Buyers Rehab in Chicago, (773) 426-2896, http://www.homebuyersrehab.com">www.homebuyersrehab.com, that is providing information and consulting services to help people get into foreclosed homes using the 203(k) program.

"With the FHA 203(k) program, first-time homebuyers can get the money for improvements and the cost of the home purchase in one mortgage," says Warren Davis, co-founder of Home Buyers Rehab. Davis and his wife, Shena Davis, help people find foreclosed fixer-uppers and work with the homebuyer to take them through the steps necessary to get the loan and move into the home. The company soon will be offering workshops in Michigan to explain how first-time homebuyers can take advantage of this FHA program.

Davis cited an example of a family in the Chicago area who bought an $80,000 home and made $58,000 in improvements, so they got a loan of around $145,000 after their down payment. Recently, the home was appraised at $233,000, giving the family more than $85,000 in equity.

Another great thing about the FHA 203(k) program is it covers most home improvements, not just ones that bring the home up to code.

The program also allows homebuyers to get into the home with as little as a 3.5 percent down payment, and those funds can come from a relative or a loan from a 401(k), making it much easier for people to come up with a down payment.

Getting into a home with such a small down payment is vital for many first-time homebuyers, particularly in today's environment, where lending has tightened due to the subprime crisis. Scott Rohr of Blue Line Mortgage Funding, (586) 749-3777, said while the credit score to get a typical FHA loan is around 620, it is much higher for conventional loans.

He also said mortgage insurance companies won't insure a home that has more than 90 percent loan-to-value ratio, so that makes it harder for many first-time homebuyers to get into a home because they need a much larger down payment.

That's why programs like the FHA 203(k) are so valuable. In addition, there are some county and municipal programs available to first-time homebuyers that are part of HUD's Neighborhood Stabilization Program. The Neighborhood Stabilization funds can be used by local governments to buy foreclosed or abandoned homes for resale to low- and moderate-income families, make any needed repairs to bring the homes up to code, and then provide down payment and closing-cost assistance to those who qualify for the program.

Oakland County's program was so successful that it has already received its allotted number of applications. However, Macomb County, (586) 469-6285, http://www.macombcountymi.gov/MCPED">www.macombcountymi.gov/MCPED, recently launched its program for 21 communities in the county. In addition, many communities, such as Canton Township, Warren and Sterling Heights, have their own Neighborhood Stabilization programs.

"With the longer approval timeframes involved in many of the government loan programs, some people are losing out because the banks want to get these foreclosed homes off the books as fast as possible, and are selling the homes to investors with pre-approved credit," he said. "But with all the foreclosed properties in the Detroit area, there are some real bargains available that can make getting into a home much easier."

If you would like to suggest a question for Glenn Haege's Tuesday column, e-mail askglenn@masterhandyman.com">askglenn@masterhandyman.com. If you want to talk to Glenn, call his "Handyman" radio show on WJR at (866) ASK-GLENN, (866) 275-4536, between noon and 2 p.m. Saturday and Sunday.