FHA 203k Loans Guide
Section 203(k) from the Federal Housing Administration (FHA) enables buyers to obtain financing for both the house sales price, necessary repairs, and rehabilitation costs in one loan. Rather than going through the complex process of purchasing the house, and then securing another form of financing for modernization or repairs, the FHA 203k program has both combined into a one, long-term, fixed rate covering both the rehabilitation and acquisition costs.
The idea of being able to buy a dilapidated, rundown house and then fix it up is an appealing concept to many people. So many individuals are fascinated with fixing or improving homes, including being able to flip homes for money. Flip or Flop and other television shows, glamorize all of the challenge and hard work that are faced when trying to upgrade a house.
It can be a good idea to think about potentially renovating a house; however, the truth is that it isn’t an easy and quick job that can generate a substantial profit in a short amount of time. Numerous elements should be taken into account when determining which house to buy, like the current state of the local real estate market along with the affordability and extent of the improvements that need to be made.
What Are FHA 203(K) Loans?
If you are considering buying a home that is in need of repairs, then you may have to take a mortgage loan out for the acquisition as well as future renovations. The Federal government, fortunately, has options like an FHA 203(k) loan that is available for homeowners for funding the expenses that are associated with renovation loans.
The FHA 203(k) loan, in essence, is a unique type of mortgage program that is intended to make it easy to buy a decaying house that needs extensive repairs and renovations. This type of loan is also called a rehab loan. A rehab mortgage’s primary purpose is financing the purchase and renovation or rehabilitation of a property. If you own a home already that you want to renovate, you can apply to get an FHA 203(k) loan for that purpose as well.
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Allowed Types of Improvements
A 203(k) loan enables you to perform certain types of renovations on your house. Fortunately, the list covers nearly all kinds of improvements that your house is most likely to need, including the following:
Adding a landscaped garden
Installation or renovation of floors
Replacing the current gutters and roofing, etc.
Replacing the current plumbing system
Improvements to the internal and external appearance
Improvements to the energy efficiency capabilities of the home
Improvements and modernization to the functional elements of the house
Eradicating existing safety and health hazards
Modifications and restoration of the internal and external structure
Different FHA 203(k) home loan types
There are two main kinds of FHA 203(k) home loans, with each of them having several prerequisites and maximum budgets:
Standard 203(k) Loan
If the renovations to your house require architectural or engineering inspections and drawings, you will have to apply for this type of loan. Also, the amount budgeted for repairs should be more than $35,000. This kind of loan program, in a nutshell, covers tearing down the house and then rebuilding it from the ground up. There is only one requirement, which is that the original foundations of the home must be kept.
Limited 203(k) Mortgage
The streamlined or limited 203(k) loan is intended for financing improvements that are not over $35,000. Also, it is important to note that with this kind of mortgage, the only renovations that are included are ones not requiring architectural drawings or engineering. The loan, in essence, covers adding on a patio, exterior or interior painting, repair or replacement to the gutter or roof system, and minor repairs.
Additional information on FHA 203(k) loans
The following is some relevant information on the 203(k) loan:
You must go through a provider registered with the FHA to apply for an FHA 203(k) mortgage.
After you have had your loan for six or more months, you will be able to refinance the loan and get a conventional home mortgage to replace it.
The program only is available for single house projects, including family houses, torn down homes that still have an existing foundation, and also relocating your current house to a new location.
Usually, you will have six months maximum to get your renovations completed from that time that your loan is approved. However, you may be able to apply to obtain a deadline extension.