Money Matters: Finding Financing for a Fixer-Upper

How to get the money for a home makeover

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My husband and I are looking to buy a home, but all we can find in our price range are “fixer-uppers.” We only have about 10% for the down payment. How do we finance repairs when many banks aren’t giving home equity lines of credit anymore?
Via E-mail

It sounds like you and your husband are prime candidates for an FHA-insured “203(k)” or rehabilitation loan, created specifically for brave buyers willing to take on a house that needs work. The loan covers the purchase price of the home itself, plus the expense of remodeling. Lenders require a 3.5% minimum down payment, and this loan must be used for your primary residence–not rental property.

To get started, find your diamond in the rough and execute a sales contract, making sure the document states your purchase is contingent on approval of a 203(k) loan for an amount that includes the cost of repairs. Next, find a lender by visiting You’ll then present the bank with a detailed outline of the planned improvements and their itemized cost. The bank will do an appraisal to determine the property’s value after renovations. Once you’ve been approved, the final amount of the loan will also include a “contingency reserve” of 10% to 20% of the repair costs to cover any additional work. At closing the seller is paid, and the remaining loan amount goes into an escrow account from which the borrower pays contractors. Check to find out the maximum amount you can borrow with an FHA mortgage in your area.

This article originally appeared in the February 2010 issue of Black Enterprise magazine.

  • Shaquawn

    very informative just what i needed to know about fix-uppers there are plenty in my hometown for cheap and i wanted an initial why of processing one. THANKS

  • Great article on the FHA 203K. I am in Northern CA and have closed nearly 800 FHA 203K’s since 1994. The program also has a sister program called the Section 184 for Native Americans. A great way to buy with a lower down payment and no monthly MIP. I have many African American clients that have a verifiable Native American background.

    Most lenders and realtors are afraid of theses programs. I would be happy to speak with you about getting the word out so that our friends & clients can get the home of their dreams regardless of condition.


    Great information…..Thanks so much! You’ve given me the re-cap to move on.

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