A lot of foreclosures are on the market after the recent recession and market crash. These are tempting deals for people who are looking for a way to make a quick buck, and they can be affordable and even profitable in some cases. The problem usually comes when people have to do all the repairs, though. On your own, it could take months, or even years to come up with all the money to repair homes the way that they need to be fixed up. The good news is that there is a solution to this problem now. The FHA 203k program offers a chance for people to get financing to purchase a home AND to do the necessary repairs. This means that more people are able to become homeowners and more neighborhoods are able to be rehabbed.
This type of loan can be used on any home that is purchased as:
- A primary residence for a single or multiple families (duplexes, triplexes, and four-unit homes qualify)
- HUD approved nonprofit use
- Residential/commercial property where only the home is being repaired
Like all mortgages, this loan does require a down payment and a minimum credit score. There is also a maximum lending amount that can be requested based on the cost of the home, and you can't just ask for a random amount of money. The application for these loans requires you to create a detailed estimate of everything that needs fixed, including estimated costs, so that the lender can see how much money you actually need. There is a lot more paperwork involved and this loan can take a while longer than the standard FHA loan, but it's worth the wait for those who can benefit from it.
This is a critical tool that's going to help revitalize neighborhoods and get people back on track. It's the government's solution to increasing home ownership and fixing up distressed properties so that the real estate market gets the boost that it needs. It's a really good tool because it can do everything from simple little repairs to major structural repairs. These loans even offer the chance to move homes to new foundations, rebuild homes from an existing foundation, and more. There are so many repairs that are covered under this loan that it isn't hard for people to get the homes that they have been looking for these days.
The maximum lending amount for this type of loan depends on the property value, just like any loan. It actually depends on the value of the property or the purchase price before repairs, depending on which one is less. Then, the cost of repairs is added to the total. The other option is to use 110% of the home value after improvements. For example, if a home is on the market for $50,000 and it is so distressed that it needs $45,000 worth of work but it is only worth $80,000 in repaired condition, the loan won't be approved. In this situation, they would turn to the property value before repairs to determine if it meets requirements before they rule out the loan.
People who want this type of loan will have to put down the same 3-5% that they would with a typical mortgage. With an FHA 203k loan, though, you have to calculate the cost of repairs into the bid amount to figure out the down payment. If you have a home that you buy for $20,000, for example, and the repairs are estimated at $15,000, You would have to put down $1050-1700, or 3-5% of the total price.
FHA 203k approvals are an option for many people, but they do still have standards. It is important for consumers to be prepared for the application process and paperwork involved so that they know what they are getting into. With the right information and planning, this can be a useful tool to a lot of people.