The real estate market has faced a lot of challenges in the last five years or so, but things are finally starting to look up again. There is a lot of promise for the market right now and it seems to be growing quite rapidly. Because of this, it's probably a good time for more people to consider buying a home. Not everyone will go the traditional route, however, so it's important to know the options that are available. The FHA 203k loan is something that's worth a look for those who want to buy and fix up a home with just one loan.
This program is FHA-sponsored, which means that it is secured by the government. Therefore, homeowners can borrow money to buy and repair a home with low interest rates and just 3-5% of the sale price as a down payment. This gives people a great opportunity to get into a home when they need more than a traditional loan. Many of the standard FHA rules and guidelines apply to this loan. There are some differences, however, and learning how it works can help in your lending decision.
How the FHA 203k Loan Works
Because these loans are so different and complex, it's helpful for interested applicants to have a consultant on their side. A HUD-approved individual will work with a borrower to help determine the work that needs done, ensure that the borrowers understand the terms of the loan, and help them through the closing process, which takes longer than a traditional mortgage loan. There is a little more bureaucracy involved with this loan application and approval, but the 203k is an opportunity that many people can really benefit from.
The FHA 203k has limits on what can be borrowed, as well as how much can be earmarked for repairs. The maximum loan amount varies, but is usually based on the property value and repairs needed. The financial abilities of the borrower are also considered, as with any mortgage loan. The repairs are only allowed to add up (with the property value) to 110% of the improved property value. Therefore, if the improved value of the home that is purchased would be $100,000, repairs could not be more than $10,000 total. Additionally, the FHA requires repairs to have a value of at least $5,000 for the regular 203k loan. The streamlined program, which is for non-structural repairs, does not have a minimum value for repairs but has a maximum value of $35,000.
As far as the down payment is concerned, this money should come from the borrower directly. There are exceptions, however, when this can be obtained as a gift from relatives or friends to help with the purchase of a home. The buyer can also negotiate sellers paying closing costs to help offset their expenses with this loan. Funding can be used for 1-4 family properties that are going to be used as a primary residence as well as FHA-approved condos, with rules and limitations to be considered. If a property can't be occupied right away, borrowers may be able to get up to 6 months of mortgage payments included with their loan to help.
The FHA 203k loan is designed for distressed properties of all kinds. The loan is paid for the property at the time of closing and the repair money is held in escrow and paid out as repairs are made. Almost all repairs associated with the home are approved as a part of this program. Luxury improvements and other major improvements are not allowed, but there are a lot of included repairs and renovations that can be made with this money.
This is a very high-risk loan, so many lenders won't offer the funding. It takes some work to find a reputable, legitimate source for a 203k loan, but it is well worth the effort when it comes to home ownership for people who need a different solution.