Rosa Martinez showed great interest in the 1950s Mediterranean-style house in Coral Gables because she wanted it to become her future residence. The house presented a disorganized appearance because its landscaping needed attention and the walls showed signs of aging and the property showed signs of prolonged neglect throughout its entire space. The house displayed its hidden beauty through its original terrazzo floors and arched doorways and its suitable layout for her expanding family.

The house price of $300,000 fell below Coral Gables market standards because comparable homes in good condition sold for $450,000 or higher. Rosa encountered a significant challenge because she did not have enough money to fulfill the $80,000 requirement for home repairs.

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The Reality Check

The home inspector provided an excessive amount of detail during his inspection. The twenty-year-old air conditioning system had completely stopped working because it had reached the end of its service life. The hot South Florida climate made this situation an absolute emergency because it required immediate resolution. The cost for installing a brand new central air conditioning system reached $12,000.

The plumbing system presented major problems because corroded galvanized pipes spread throughout the house caused water pressure to decrease and water to turn rusty. The plumbing system experienced non-stop water leaks which occurred at various fixtures. The plumber estimated $18,000 to replace the main plumbing lines and update fixtures throughout the three-bedroom home.

The house contained an excessive amount of junk which the previous owner failed to discard. The house contained an excessive amount of junk which filled every room and the garage and extended into parts of the backyard. The cost for professional junk removal services ranged between $5,000 and $7,000 to remove all debris and prepare the house for renovation work.

Rosa needed to allocate $25,000 for cosmetic improvements which included painting the interior and exterior walls and floor restoration and kitchen cabinet replacement and bedroom carpet replacement.

The total amount needed for repairs came out to be around $65,000.

The traditional mortgage broker informed Rosa that conventional loans would not provide funding for home repairs. The loan approval process for the $300,000 purchase price enabled her to get financing but she had to pay all renovation costs out of pocket. Rosa saved enough money for her twenty percent down payment as a single mother nurse practitioner but she did not have enough funds for the required renovation expenses.

She refused to let her dream slip away.

Discovering Renovation Financing

Rosa contacted the mortgage specialist who handled renovation financing through the real estate agent after following Maria’s instructions. The discussion brought about a total change in all aspects of her life.

The FHA 203(k) Solution

The loan officer David Chen right away recommended Rosa apply for an FHA 203(k) Rehabilitation Loan. The FHA 203(k) program offered Rosa the exact solution she required because it helped homebuyers purchase fixer-upper homes through a single financing solution that included renovation costs.

David explained to Rosa that the 203(k) loan program allowed her to obtain financing based on the home’s value after renovation work instead of its current state. The appraiser determined that the home would value at $390,000 after completing the renovation project. The FHA enabled Rosa to obtain home financing through their 96.5% loan-to-value program after she completed all required repairs.

The financial calculation produced exactly the results we needed. The loan will provide Rosa with $365,000 to purchase the $300,000 home and complete the $65,000 repair work. The 3.5% down payment requirement of $12,800 enabled Rosa to start the process. The loan provided funding for all expenses including home acquisition and complete renovation work and some of the closing expenses.

David explained to Rosa that the 203(k) loan program included two different options. The Standard 203(k) loan program provided Rosa with the correct solution because it allowed her to fund major renovations that exceeded $35,000. The Limited 203(k) loan program provided financing to homebuyers who required repairs under $35,000 but Rosa needed the Standard version because her property required major plumbing and AC system repairs.

The Renovation Process

The 203(k) loan process needed more documents than Rosa anticipated but David helped her through each step of the process. The FHA required Rosa to select an FHA-approved consultant who would create a complete work plan with cost details for all necessary repairs. The consultant would monitor the renovation process to verify that all work met FHA standards.

Rosa obtained multiple contractor bids for each repair category. She chose a Coral Gables-based HVAC company that focused on historic home AC systems and had experience with Mediterranean architecture cooling requirements due to its high ceilings and thick walls.

The plumbing contractor she chose had experience with vintage home galvanized pipe replacements. The contractor would perform section-by-section work to enable Rosa to stay in her home during renovations although she needed to move out during the most demanding periods.

She selected a local junk removal service which would remove debris and donate usable items while keeping the total cost between $4,500 and $5,000.

Rosa evaluated three different financing alternatives before selecting the 203(k) loan.

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The Fannie Mae HomeStyle Renovation Loan offered similar advantages to the 203(k) but demanded better credit scores from borrowers and required them to put down more money. The 203(k) loan program offered Rosa better terms because it had more flexible credit requirements than the HomeStyle Renovation Loan.

Rosa could obtain conventional financing through a home equity line of credit but she would need to purchase the home first then apply for the HEOC based on the current market value instead of the future value. The method she chose would leave her without enough money to finish all necessary repairs.

Private lenders offered Rosa fast access to money for buying and fixing properties through hard money loans but she would have to pay interest rates exceeding 10%. The FHA loan offered Rosa a better option because she plans to stay in this house for many years while the private lender loans charged her higher interest rates.

The personal loans I received from friends failed to provide enough money for all needed repairs because they carried expensive interest rates.

Funding the Specific Repairs

The 203(k) loan program established an escrow account to fund specific repairs. The lender would establish a dedicated fund at closing which would hold the $65,000 budget for repairs. The FHA consultant needed to verify all renovation stages before he could approve lender payments because he needed to confirm contractor work at each stage.

The installation of a new air conditioning system became essential because South Florida experienced extreme heat during August. The installation of a new high-efficiency air conditioning system took place within two weeks after closing to provide Rosa with energy-efficient cooling for her future needs. The HVAC company received $12,000 from the lender after the consultant confirmed that all work had been finished.

The plumbing work started after the AC installation and required three weeks to complete. The plumber finished all necessary work after receiving $18,000 from the lender.

The contractor began work right away after Rosa received payment for junk removal expenses from the repair escrow fund. The initial cleanup stage allowed contractors to begin their work without causing any delays to the project.

The final stage of cosmetic work took three months to complete. The exterior of the house received a fresh new look through painting which restored its Mediterranean architectural style. The floor restoration and wall painting created new beauty throughout the interior areas.

Living the Dream

Rosa Martinez welcomed friends to her renovated Coral Gables house six months after discovering the abandoned property. The house maintained perfect comfort levels through its operating air conditioning system which operated during the hot Miami summer. The water flowed without any issues from all faucets throughout the entire house. The restored terrazzo floors created a beautiful light reflection effect through the arched windows.

Rosa purchased the house through her monthly mortgage payment which she used to complete all renovation work without requiring additional loans or multiple loan payments. The 203(k) loan enabled her to achieve her dream.

Rosa purchased her home for $300,000 before using $65,000 from her mortgage to fix it which increased her property value to almost $400,000. The 203(k) loan program enabled her to build instant home equity while safeguarding her family’s Coral Gables residential property value in a desirable neighborhood.

Rosa looked out at the view from her newly renovated patio as she smiled. The most valuable opportunities emerge from situations which others consider to be worthless.

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