FHA 203k Loan Overview

It can be tempting to buy a fixer-upper, and transform it into your dream home. However, the reality can sometimes be quite harsh. Realizing how expensive it is to remodel your home can often make it clear that you cannot afford it. In addition, you might find that the property is too dangerous to live in, and a lender will not approve you for a loan. An FHA 203k loan is the answer.

An FHA 203k loan, which the federal government guarantees, is available to buyers who wish to purchase a home that has been damaged or abandoned and make repairs. Let's take an example: You want to purchase a house that requires a new bathroom and kitchen. An FHA 203k lender would give you the money to purchase (or refinance the) the home and the funds to renovate the bathroom and kitchen.

The loan may also include a "contingency reserve" of up to 20% to ensure that you have enough funds to finish the project if it costs more than estimated. There will also be a provision that allows you to make up to six months of mortgage payments, so that you can still live somewhere while you remodel and pay your mortgage.

Which Repairs Qualify For Certification?

FHA 203k mortgage loans come in two types. First, the standard or regular 203k mortgage loan is for properties that require structural repairs, remodeling, or landscaping. The second, the limited or streamlined 203k mortgage loan, is for energy conservation improvements, new roofing, or appliances.

The FHA 203k Also Covers The Following Repairs:

• Decks

• patios

• Remodeling your bathroom or kitchen

• Flooring

• Plumbing

• new siding

• Additions to your home, such as a second floor

• Heating and air conditioning systems

• More

It does not cover "luxury" upgrades such as the addition of a tennis court or pool. In addition, the program does not cover any improvements that are not permanent.

What Is The Maximum Money You Can Make?

FHA203k loan limits vary depending on what type of loan you have (regular, streamlined, purchase vs. refinance). The minimum amount that you can borrow with an FHA 203k regular loan is $5,000.

A regular FHA203k loan will allow you to borrow the maximum amount for a purchase loan:

• The Nationwide FHA Loan Limits

OR

• The appropriate Loan to Value (LTV) ratio calculated from the Purchase Loan To Value Limits multiplied by:

  • 110 percent of the After Improved value (100 percent in condominiums),

• The Adjusted As-Is Value plus the following:

  • Financeable Repair and Improvement costs, Standard 203(k), or Limited 203 (k);

  • Financeable mortgage fees, Standard 203(k), or Limited 203 (k);

  • Financeable contingency reserves, Standard 203(k), or Limited 203 (k);

  • Only for Standard 203(k), Financeable Mortgage Payment Reserves

Refinance limits are similar, but they also consider the amount of existing debt and the fees associated with the loan.

A streamlined loan can be used to obtain a loan up to $35,000 plus the purchase price. There is no minimum repair or energy cost. An appraisal may be required to determine the property's value as it stands or the value that the property will have after repairs. The appraisal will require you to pay 3.5 percent. However, money can be provided by a relative, an employer, or a charitable organization.

What Types of Properties Qualify for the Award?

These Are The Homes That Qualify For An FHA 203k Loan:

• A home for one to four families that have been built for less than a year

• If some foundations are still in place, a home may be demolished.

• You are looking to sell your home and move to a different location

• While the home cannot be used as a co-op unit, some condos may be eligible.

You will need to make sure your property meets the FHA requirements. For example, its value must not exceed a maximum amount that depends on where you live.

What Are The Positives And Negatives Of These Loans?

These loans have the main advantage of allowing you to purchase a home that is in dire need of repairs. The down payment requirements are low, and you often get good interest rates. However, rates and discount points can vary depending on where you live. Therefore, it's important that you know what you're getting for your loan.

There are some downsides to the loan: not all properties are eligible, you have a limit on how much funding you can receive, and it is difficult to apply for. In addition, to apply for the loan, you might need to hire an independent consultant. This is because you will need to submit a detailed proposal and estimate for each item.