Organizers working with local governments to set up programs that provide homeowners with loans for energy-efficient improvements are choosing a variety of formats. Some are considering low-interest loans; some are using PACE (Property-Assessed Clean Energy) financing, where homeowners pay back the loan through their property taxes; others are opting to use the PAYS (Pay As You Save) system where homeowners pay loan installments through utility bills.

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HUD’s 203(k) program can help you with this quagmire and allow you to purchase or refinance a property plus include in the loan the cost of making the repairs and improvements. The FHA insured 203(k) loan is provided through approved mortgage lenders nationwide. It is available to persons wanting to occupy the home.

The downpayment requirement for an owner-occupant (or a nonprofit organization or government agency) is approximately 3.5% of the acquisition and repair costs of the property.

The 203(k) loan includes the following steps:

• A potential homebuyer locates a fixer-upper and executes a sales contract after doing a feasibility analysis of the property with their real estate professional. The contract should state that the buyer is seeking a 203(k) loan and that the contract is contingent on loan approval based on additional required repairs by the FHA or the lender.
• The homebuyer then selects an FHA-approved 203(k) lender and arranges for a detailed proposal showing the scope of work to be done, including a detailed cost estimate on each repair or improvement of the project.The appraisal is performed to determine the value of the property after renovation.
• If the borrower passes the lender’s credit-worthiness test, the loan closes for an amount that will cover the purchase or refinance cost of the property, the remodeling costs and the allowable closing costs. The amount of the loan will also include a contingency reserve of 10% to 20% of the total remodeling costs and is used to cover any extra work not included in the original proposal.
• At closing, the seller of the property is paid off and the remaining funds are put in an escrow account to pay for the repairs and improvements during the rehabilitation period.
• The mortgage payments and remodeling begin after the loan closes. The borrower can decide to have up to six mortgage payments (PITI) put into the cost of rehabilitation if the property is not going to be occupied during construction, but it cannot exceed the length of time it is estimated to complete the rehab.
• Escrowed funds are released to the contractor during construction through a series of draw requests for completed work. To ensure completion of the job, 10% of each draw is held back; this money is paid after the lender determines their will be no liens on the property.

For a list of lenders who are offering the 203(k) Rehabilitation Program, please see the 203(k) Lenders List. The interest rate and discount points on the loan are negotiable between the borrower and the lender.

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Remodeling projects inside and outside the home can bring a good return on your investment while adding curb appeal for selling your house.

Even though housing prices nationwide have dropped over the last year, homeowners continued to improve their investments. Whether you’re considering remodeling to lend curb appeal or to make your homes more comfortable to live in now, there are projects that bring a solid return on your investment.

The National Association of Realtors (NAR) reported a seven percent overall drop in home prices in the last year. But Remodeling Magazine’s 2008-2009 Cost vs. Value Report shows that moderate upgrades and maintenance-related home improvements continue to pay returns. Recovering your investment often depends on your location, and payoffs are simply slower to recoup than in recent years when the market was booming.

Top Remodeling Projects in 2008
Homeowners want to know how much of the money they invest in remodeling will show up in the total housing price when they sell. In 2008, the greatest paybacks came from outdoor, curb-appeal projects such as new decks, replacement windows, and siding. For inside jobs, kitchen remodels reported the greatest returns nationwide in increased valuation, according to the NAR. Here are the winning projects:

1. Fiber cement siding (upscale) brought an 86.7 percent return on investment (ROI)
2. New wooden decks (using mid-range materials) brought back 81.8 percent
3. New vinyl siding (using mid-range materials) returned 80.7 percent on investment
4. Foam-backed vinyl (using upscale materials) held an 80.4 percent ROI
5. A minor kitchen remodel (using mid-range materials) delivered 79.5 percent returns
6. Vinyl window replacements (using upscale windows) had an ROI of 79.2 percent
7. Wood window replacements (mid-range materials) brought back 77.7 percent
8. Vinyl window replacements (using mid-range windows) had an ROI of 77.2 percent
9. Wood window replacements (upscale materials) had a 76.5 percent return
10. Major kitchen remodeling projects (using mid-range materials) had a 76.0 percent ROI

Keep Up with the Joneses
In deciding on improvements, you should evaluate what your neighbors are doing. If you’re in a subdivision that was built in the 1980s, for example, it pays to see if your neighbors have upgraded their kitchens or baths, have built improvements outside for curb appeal, and so on. That’s what you’ll be up against if you decide to sell.

Much of ROI has to do with your region. For instance, a remodeled basement might bring an ROI of 92.7 in California, while in New England you might be lucky to draw as large a return as 61.9 percent. In the Northeast, improvements that increase energy efficiency do better than they do in the Southwest.

Here are some easy-to-complete improvements which can also increase curb appeal:

• Clean up the yard, front and back, removing trash, clutter, and overgrowth
• Paint the exterior
• Wash windows and skylights and replace burned-out lighting fixtures
• Reface kitchen cabinets and re-paint the kitchen
• Finish floors and shampoo carpeting

You just might accomplish immediate gains by employing elbow grease and a few hours as opposed to spending a fortune.