Everyone likes to get more for their money. A combo is a great thing, which is why you find so many things put together for a single price and so many people buying them up for the good deal. With an FHA 203k loan, you're getting the money to buy a distressed house and the money to fix it up all at once. What's better than that? Plus, you don't have to have a high credit score like you would with a HELOC or equity loan. This is an FHA loan, so most FHA lending rules apply. It's going to be up to you to get the facts about this lending solution and see what you can find before you make any decisions, though.
Think of this as a gift. The government is giving these loans to people to help them become homeowners, and as a gift to communities for revitalization. It's a win-win for everyone. This loan was designed to help the real estate market, and since it's such a huge risk, the government endorsement really helps. Real estate investors with a huge cash flow are no longer the only ones who can buy homes and rehab them. The bank is much more cooperative in lending money for an FHA 203k loan because it's backed by the government, but these loans are still rare to find because of their risk.
Here are the important things you need to know to figure out what loan is right for your situation:
What cash is required: This loan allows for all necessary repairs and related expenses, as well as the potential to get the first six months of your mortgage covered while doing repairs. That's what you can get. The down payment you need is 3-5% of the total cost, depending on the lender. This means a percentage of the total loan, not just the house's purchase price.
Types of Loans: There are two different options for 203k loans. Regular loans are for homes that are in need of structural repairs. Streamlined loans are available for homes with non-structural repairs. These can both be used as a purchase loan or refinance loan, too, giving people more options.
Maximum Repair Money: Regular FHA 203k loans allow borrowers to get up to 110% of the expected property value or the as-is value of the property plus repairs. Streamlined loans allow for a maximum amount of $35,000.
Eligible Homes: Any primary residence (1-4 family properties allowed) that is at least a year old. Also, tear downs can be financed if the foundation remains, and homes can be financed when they are moved to a new foundation. FHA-approved condos and mixed-use properties are allowed when they meet certain guidelines.
FHA approved repairs: These loans can cover every detail of a basic renovation, including additions, painting, siding, decks, remodeling, appliances, finishing attics and basements, HVAC systems, roofing, flooring, eco-friendly repairs, disability access, grading and drainage, sand structural repairs are all on the list. Ask your lender for more information.
Applying for the loan: The FHA requirements are still applicable in this loan, but there is more paperwork involved. A minimum credit score, verifiable income, and a written estimate of all repair costs will be necessary to get approval for your loan. The process takes much longer than a traditional loan, so it can be tiresome, but it is worth it for a lot of people.
Risky Business: There are a lot of lenders who don't do FHA 203k loans. They're just not going to get themselves into that kind of risk because it could blow up in their face. You should also make sure that you're not investing too much in a home so that you don't set yourself up for failure. This is a great opportunity and you need to use it well.
The 203k loan is a great tool if you learn how to use it. Make sure that you work with people who know these loans and what they entail so that you can get what you need out of your investment.