The FHA 203k loan options are the Federal Housing Administration's way of helping more people become homeowners. There are two different loan programs: the full 203k and the streamlined 203k. These loans do still have regulations and guidelines that must be met, but they basically work like construction loans and look like regular FHA loans in terms of approval and requirements.
With the increasing number of foreclosures, short sales, and abandoned or vacant homes that have been left to their own devices, these loans are creating a solution for everyone. The 203k helps revitalize neighborhoods and get homes in good shape again, while also helping more people have a chance at home ownership when they might not be able to afford a traditional mortgage. The main difference between the two loan programs is that the full loan is for all types of repairs while the streamlined 203k is specifically for non-structural (cosmetic) repairs.
The rules are different for both of these loans. They have their own different benefits and features to consider, as well. Anyone who is looking to get a loan like this to buy a property that needs some work needs to know the basics so that they can make an effective decision and get the financing that they need.
FHA 203k Loans
Regular 203k mortgage loans have the same qualifications as traditional FHA mortgages. These loans require MIP and UFMIP just like the others. Appraisals are necessary as a part of the application process for this type of funding, and the loan is only available to those who are buying properties as a primary residence. The loophole for investors is that homeowners must live in the property for one year, and there is rumor that an investor's FHA 203k loan might be coming through in the near future. Repairs can't begin on a property with this type of loan until closing is complete. At that time, money is put into escrow to pay contractors when they complete work that is required on the property. Loans can be given for up to 110% of the improved property value.
FHA 203k Streamlined Loans
Streamlined loans are going to take care of all the non-structural issues with a home. These loans are much more like construction loans. You can buy a home you might not otherwise want or be eligible for and then fix things up with the money that you borrow for repairs. The total loan amount will include the home cost plus repairs, and the streamlined loan has a limit of $35,000 for repairs. It's a quicker, easier solution for people who have a home without structural issues but who want to get involved with the FHA 203k program to help them buy a home that they can make their own.
Which Is Better?
When you are looking into getting an FHA loan like this, there isn't necessarily one that is better than the other. Both loans have a specific purpose and depending on your needs, you will discover which loan is best for your situation. Make sure that you talk to an FHA 203k consultant because they can help you explore your options and understand what you are getting involved with. The best loan is the one that gives you the chance to own a home. It's really that simple.
You do also have to be careful about getting this loan in the first place. It's a very high risk, in terms of lending, and even though it is backed by the government there are many banks and lenders who still don't deal with these loans. You will need to do your homework to find reputable lenders that offer FHA 203k mortgage loans so that you can get your chance at home ownership. This solution gives people homes that they can call their own and it also gives communities a chance to get back in shape and recover from the recent market crash.