The FHA 203k loan has a lot of fear and stigma surrounding it for the sheer fact that people just don’t know what it is or how it works. In a world where people think the world owes them a living, it can be hard to explain a mortgage problem like this and some people might not even think that they ever need to know about something like this. The truth of the matter is that it is a great opportunity for people who are trying to buy a home but might not be able to do things the traditional way. It's also a great opportunity for people who want to help save distressed homes from an early death and get neighborhoods back in shape.
If you are buying a primary residence that needs a significant amount of work, the FHA 203k loan is a vehicle that can help you get your home and get a jumpstart on future financial security. This lending program has limits, regulations, and guidelines that have to be met, of course. It's not a lending free-for-all. There is a limit on how much can be borrowed and repair costs need to come from detailed estimates, not just out of thin air. Anyone that's buying a primary residence can use this loan to get the home plus the money for repairs if they meet the application requirements and other guidelines.
The down payment for the FHA 203k loan is usually between 3 and 5 percent of the total value. That means you'll have to add the home price to the repair costs that you're asking for, and pay a down payment based on a percentage of that amount, not just the home price. There's a lot to learn that people don't understand, though, so here are some tips to help you get the facts and know what you're getting into.
Down payments can come as gifts from family members. They can also come from assistance programs. This is good to know for people who might want this type of loan, but struggle with the down payment.
FHA co-signing rules are in place, so people who don't earn enough don't have to worry. They can still get these loans if they can find someone to co-sign.
Credit score requirements are usually 620+, so you don't have to have perfect credit or anything close in order to qualify for this type of loan. Some FHA loans are still offered to people with scores as low as 580, but this is very rare.
It's not just for first-time buyers. Anyone who is buying a home and planning to live in it (not flip it for profit) can use this loan to get financing for their home when it needs a lot of work. Buyers must live in the property for a minimum of one (1) year, so those seeking profits can actually do this once a year if they desire. Lenders will love the repeat business.
Why are people just hearing about this? One of the biggest issues with the FHA 203k is that people don’t know what it is or how it works. These are high risk loans and a lot of lenders don't even want to deal with them. Therefore, they might not want to even talk about them in the first place.
To some people, this all seems like it is "too good to be true". To an extent, it is. However, it can all go wrong really quickly and become a big problem if it isn't used properly. With the right information and the assistance of informed lenders, people can set themselves up strategically for success and make the most of this lending program. It's a great tool that can be given to a lot of people who might not otherwise be able to own a home. It's also a great way to make a profit for those who aren't looking for instant results, but mostly it's a tool to help home owners and the real estate market.