Are you considering buying a home that needs work? When buying a fixer-upper, one of your primary considerations should be how you will finance the project. One of the better options is what's known as an FHA 203k loan.
FHA 203K Mortgage is the term that designates funding dedicated to purchasing and refurbishing your primary residence home. It is a more relaxed type of loan since the U.S. government guarantees it.
The beauty of FHA 203k loans is that you can combine the financing of the purchase of a home and the cost to make repairs and renovations. You will only need to get one loan with this type of mortgage instead of getting two.
Let's take a look at all the things you should know about this type of financing.
If you want money to buy a home to live in with your entire family, refinance it, or have this house renovated and improved, the easy solution is to apply for an FHA 203K mortgage. It allows you to pay for the renovations in one loan.
It is an affordable financing option for many buyers. It can give you access to better living areas, increasing the number of options for the purchase.
The good news is that the Federal Housing Administration guarantees this type of loan. This means that their terms and conditions and the qualification requirements tend to be more lenient.
You will need to follow the steps of mortgage approval like conventional loans but will also have to detail other things such as the renovation costs.
This type of financing comes in two versions. There is the standard FHA version and the limited version, which is also referred to as “streamline.” In both cases, you receive the option to refinance.
All FHA 203k loans have specific rules regarding the amount you are approved as a loan for renovation. Keep in mind that upgrades to your home do qualify. However, what you can do does not include luxury appointments, like swimming pools or gazebos.
Here are the loan limitations for each FHA mortgage version:
Here is a general list of the type of works that you can cover with an FHA 203(k) mortgage. Keep in mind that this is just a selection, and many more others may qualify.
It is advantageous to start your renovation project immediately after the house purchase. Consequently, you need to get a good deal with a contractor in advance. Each step involves paperwork and procedures that might take some time, and you only have an interval of six months to complete the project.
As we have previously said, this is a more relaxed loan when compared to other usual types. However, it is a very niche mortgage, and the borrowing limits are not that permissive.
There are a few standard steps that you must follow:
Choose your lender according to your current financial situation and needs. Each one will cover a certain need on the market.
The FHA 203(k) mortgage is highly appreciated among those searching for a new home, especially if there are still renovations to do after the purchase. However, as with all other similar decisions, there are always pros and cons to analyze before taking this step.
The FHA 203k rehabilitation loan is worth considering for anyone who is buying a home that needs work. Like any loan product, it is vital to do your due diligence. You should now have a much better understanding of how an FHA 203k loan works. Best of luck with your purchase and project.