A misunderstood and little-known loan product could be the answer to your house-buying woes.

Let's say you've been out looking at homes to buy. You've found something; it's the right size, great location, perfect yard. If it weren't for that darned master—there's no master bath!

Here's something that will rock your world: A loan product that allows you to renovate the home and work the cost of renovation into your mortgage loan, all at a nice sub- 5 percent, 30-year fixed rate. It's called the FHA 203K loan and it's a viable answer for discriminating home buyers in a market with very few choices.

"We do these type of loans all the time," said Nancy Patt, Derry Township resident and senior loan officer for Residential Mortgage Services. "They are a wonderful
option for folks who are buying and updating foreclosed, fixer-upper and short sale properties."

Two main caveats exist for the 203K: The work must be completed within six months of settlement and must be done by a licensed contractor; no using Uncle Billy! The guidelines expressly state that neither relatives nor homeowner can act as a contractor or perform the work. This ensures quality workmanship and protects the lending institution's asset. The maximum renovation amount of the 203K loan is limited to the FHA county loan limit—which, in Dauphin, Lebanon and Lancaster counties, is $314,827.

First-time home buyers Hannah and John Schamber of Derry Township are looking to purchase in Hummelstown Borough and think FHA 203K might be their best option.

"If we can buy at the right price," John Schamber said, "incorporating the remodel costs into our loan makes sense. With the home we're considering, the value might not be there for a flipper, but it certainly could be there for us, since we plan on living in the home for at least five years."

Patt has seen home buyers rush out to look at properties before speaking with a qualified renovation loan specialist, which presents future challenges after a purchase contract has been accepted by a seller.

"These loans only work for owner-occupied primary residences, 1-4 family units and FHA approved condos. It's very important to make sure all the nuances are explained to the buyer and they understand the process, but I've found these loans to be very simple as long as everyone is communicating," she said.

In today's tight housing market, buyers must stay flexible. The 203K effectively morphs them into yoga instructors. It opens a new world of possibilities that other buyers will miss because of ugly tile, drafty windows or outdated cabinets.

This type of renovation loan also exists for conventional loans (Fannie Mae HomeStyle or Freddie Mac Renovation). Using these products allows buyer to hurdle the $314,827 FHA price cap and also waive private mortgage insurance (PMI).

One last word about mortgages. All lenders and products are not created equal. Make sure you're working with someone with the heart of a teacher who listens, understands your situation and offers the best product for your needs. Ask friends, family members or your realtor for a recommendation.

And if you're interested in the 203K, use a lender that cranks these out; familiarity with this versatile but little-known product by your lending team will be crucial for a smooth experience and positive outcome.

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