Owning your home can be so exciting! Finally a place to call home, and make your own! You can customize and style every nook and cranny. But when you do your research, and you realize how much it will cost to remodel, you often come to the conclusion that you can’t afford it. It’s even worse when you own a “fixer upper”, you might find out that a lender won’t give you a loan because the home is considered “uninhabitable” as it is. That’s where an FHA 203k loan comes in.
Here how it works, let’s suppose you want to buy a house that’s need a new kitchen and a new bathroom. A 203k loan provider would then give you the money to buy or refinance the house, and the necessary finances to remodel the kitchen and bathroom.
What is a FHA 203k Loan?
An FHA 203k loan is a loan backed by the federal government and given to buyers who want to buy a damaged or older home and do repairs on it. Often the loan will also include: 1) an up to 20 percent “contingency reserve” so that you will have the funds to complete the remodel in the event it ends up costing more than the estimates suggested and/or 2) a provision that gives you up to about six months of mortgage payments so you can live elsewhere while you’re remodeling, but still pay the mortgage payments on the new home.
What Repairs qualify?
Hold your horses there folks, just because you’re thinking of adding a new pool or tennis court to your home, doesn’t mean your property qualifies for the 203k loan.
The 203k loan finances repairs for:
- decks
- patios
- bathroom and kitchen remodels
- flooring
- plumbing
- new siding
- additions to the home such as a second story
- heating and air conditioning systems and so much more
Depending on what you need done, the 203k provide two types of mortgages loans. The regular or standard 203k, which is given for properties that need things like structural repairs, remodeling, a new garage, or landscaping; the second is the streamlined or limited 203k, which is given for energy conservation improvements, new roofing, new appliances, or non-structural repairs such as painting.
How much money can qualify for?
How much money the loan will provide you with is dependent upon what loan you receive. (streamlined vs regular.)
If you received a streamlined loan, you can get a loan for the purchase price of the home plus up to $35,000 with no minimum repair cost plus the cost for energy improvements. Keep in mind you may need to have an appraisal done if you want to know both the “as-is” and post repair prices. Homeowners can make property repairs, improvements, or prepare their home for sale. Homebuyers can make their new home move-in ready by remodeling the kitchen, painting the interior or purchasing new carpet.
If you receive a regular loan then you’ll receive the maximum of the the lesser of these two amounts; Nationwide FHA Mortgage Limits, or you can receive the appropriate Loan-to-Value (LTV) ratio. The minimum amount you can receive is $5,000,
The main benefit of these loans is that they give you the ability to buy a home in need of repairs that you might not otherwise have been able to afford to buy.
The downside is that not all properties qualify, and it has to be at least $5,000 worth of what’s considered mandatory repairs according to FHA housing standards. Applying for the loan requires the assistance of a certified 203k consultant. The consultant helps apply for the loan by preparing the documents and exhibits required to get the loan, a detailed project proposal of the work, and cost estimates for each line item.
Make sure to do all of your research and strategize your finances properly to ensure you’re getting the best work.
Psst! Liking our blogs? Keep connected with upcoming product reviews, events, quizzes and so much more by following us on FB IG
Leave A Comment