Shea and Michelle Carlin recently had their eye on a two-story home with an expansive balcony outside Brooksville.
As is often the case with foreclosures, the previous owners pilfered the entire kitchen and all the light fixtures. The Carlins couldn't afford the $46,000 in repairs, and banks wouldn't lend them the money to buy the house until the repairs were completed — a Catch-22 common in the foreclosure market.
Their dream home could have slipped away.
Then they heard from their Realtor about a government program that would allow them to buy the house without needing bundles of money in advance. It let them roll the repairs into their total mortgage.
The little known and once seldom used program backed by the Federal Housing Administration has caught fire as of late. In 2006, just two people used the program to buy property in the Tampa Bay area. Last year, the number jumped to 135. Nationally, the numbers increased nearly 700 percent.
"We could've never afforded the house," said Shea Carlin, who now plans to move into the 4,700-square-foot house in March. "We didn't have $50,000 lying around."
The program, officially called 203k Rehabilitation Home Mortgage Insurance, started decades ago. The FHA insures the loan, including the additional money for renovations and repairs. The government-backing encourages banks and other lenders to green light the loan.
The loans require only a 3.5 percent down payment and come with lower income and credit restrictions than conventional loans.
"It's blowing up," said Andy Wood of American Mortgage Services in Tampa. "The program is unbelievable. It has been sitting there forever."
Still, many buyers and real estate professionals don't know about the program, despite more than 11,000 bank-owned homes listed for sale in the bay area at the end of December.
Wood wants to change that. He is certified by the U.S. Department of Housing and Urban Development, which is responsible for the Federal Housing Administration, to educate Realtors and teaches a free monthly class in the bay area. He fields calls from around the state. Classes are swelling, he said.
The loan insurance program is HUD's primary option for rehabilitating and repairing single family properties. The loan limit is $292,500 and can be used only for owner-occupied houses. Investors cannot apply. Properties with four or fewer units can be financed using the program as long as the repair money is used for the owner's unit.
The renovations must meet HUD standards for energy improvements like heating and air conditioning, window caulking and weather stripping. Buyers can even use the loans to make cosmetic upgrades, including new floors and appliances. HUD offers several levels of financing depending on the cost of renovations.
After the loan closes, money for repairs and renovations is deposited into an escrow account and monitored by a Federal Housing Administration consultant. Contractors cannot access the money until they complete the work.
The program has an additional benefit: Buyers often walk into a home with instant equity, thanks to completing repairs on an undervalued home.
Downsides include more paperwork and inspections. Finding a lender who offers the program can be difficult. And reliable contractors can be hard to find, too.
Wells Fargo partnered with Home Depot, Lowes and Sears and created a "Remodel Express" program to purchase, refinance or remodel a home. The retailers find contractors for the work. The lender screens contractors to ensure they are licensed, insured and not fly-by-night companies.
"We know the contractor is going to finish the job," said Donna Dalton-Hurst, a Wells Fargo renovation specialist in St. Petersburg. "There's very few people who do this."
Many Realtors, Dalton-Hurst said, won't tell clients about the program because the closings often take about 90 days, much longer than for conventional loans. She urged real estate professionals to use the program.
"This is going to help with moving more properties," she said. "Why would you turn your nose up at it? You're losing customers."
During the real estate boom years, when financing was much easier to obtain and more people had access to cash, far fewer people bothered with the extra steps involved in the program.
Today, Craig Beggins, owner of Century 21 Beggins Enterprises in Apollo Beach, said his agents are closing deals using the program.
"It's a very safe thing to do," he said. "It's getting very popular. It's a great option.
Scott Samuels of Remax Metro in St. Petersburg cautioned that the added paperwork, inspections and repair estimates are time consuming.
"The key is getting a loan officer who can do all the legwork," he said.
The Carlins, the Brooksville couple, are ardent supporters of the program. They borrowed $229,000 in October for the house and $46,000 for repairs.
The work helped boost the home's appraisals from the lender and insurance company to more than $350,000, Shea Carlin said.
"We walked into $80,000 of equity," he said. "The loan is fantastic."
Mark Puente can be reached at email@example.com or (727) 893-8459. Follow him at Twitter at twitter.com/markapuente.