HomeBuyer University: Buying a Home, Just Got Easier
Course 3: Loan Type Overview
Step 1: Conventional Loans – Only 5% Down Payment
Step 2: FHA Loan – Only 3.5% Down Payment
FHA 203k - Rehab Loan
FHA 203k is a home financing alternative for properties requiring repairs or improvements. The program is a critical tool for expanding home ownership, revitalizing neighborhoods, and for making homes healthier for those who reside in them.
Benefits to You
The FHA 203k program enables people to purchase a home and finance the cost of repairs and upgrades they choose to do (new kitchen, bathroom upgrades, and hardwood flooring for example).
Scenario: Let’s say you find an amazing home in your price range, however you do not like the kitchen. It needs new appliances and the cabinets are dated. The FHA 203k allows you to finance these things into the loan so you do not pay for it out of pocket, and so this otherwise amazing home will meet every need and desire of yours.
In addition to this, short sale or foreclosed residences are usually listed for sale for a fraction of the market value but are often in need of repair. Since traditional home loans require that properties be in livable condition and no need of repair, a 203k loan enables you to qualify for these aggressively priced homes. This can be a tremendous investment opportunity for you.
How the FHA 203(k) Works
The cost of eligible upgrades and repairs is limited by the version of 203(k) loan program, and the FHA loan limits for the county the property is located. Any figures for the upgrades and repairs must be substantiated by estimates from licensed contractors. The property is also required to appraise for the purchase price outlined in the purchase and sales agreement, plus the amount of the repairs. This is called the “after improved” value. After the loan closes, the money for repairs and upgrades will be placed into a third party account called an escrow account. These funds will be released as the contractor completes the work. Renovations should be performed by professional contractors and with needed permits. Inspections may be performed by HUD to verify compliance.
FHA 203k Eligible Upgrades Repairs
Understanding eligible repairs is important. FHA 203k mortgages can be used for a wide range of work. Eligible work includes:
- kitchen renovations & upgrades
- Bathroom renovations & upgrades
- heating units & cooling units
- roofs, windows, and doors
- and much more
The full list may be obtained from HUD or from an local FHA 203k approved mortgage expert by calling (860) 236-LOAN.
Buying Home With FHA 203k
Consult with a licensed loan officer to fully understand which FHA 203k Loan is right for your situation, the “streamline” or “full” version. Make sure you get a pre-approval prior to making an offer on a home requiring this type of financing. Lenders offering standard FHA mortgages do not necessarily provide 203k loans. Refer to the HUD Website for additional facts or contact First World Mortgage by calling 860-236-LOAN.