An FHA 203K rehab loan is a very popular loan that many people use to fix up houses. With a 203K loan, you get access to a government-backed loan program to get the money you need. There are many aspects involved in the FHA 203K loan program and they have advantages and disadvantages associated with them. The 203K rehab loan allows you to hang onto your savings when fixing up a broken-down house.
Buying a fixer-upper is wonderful in theory. Many people can’t resist the idea of reconditioning an older home and making it a true reflection of themselves. However once renovation estimates get underway, many homeowners realize how expensive they can be and seek financial assistance from mortgage lenders. The FHA 203K rehab loan gives homeowners the money to buy, or refinance, their fixer-upper. In addition, the federal government lends buyers the funds to complete necessary renovations. This can come in two forms:
1. A contingency reserve of up to 20% just in case the repairs require more money than originally estimated.
2. A provision that gives owners funds for up to 6 months of mortgage payments if they live elsewhere during renovations.
There are two types of FHA 203K loans. The first is the regular FHA 203K loan that is available for homes that need important repairs like a new roof. The second type of FHA 203K rehab loan is called a “streamlined” loan given for non-structural repairs such as a new deck, appliances, flooring, etc. FHA 203K loans do not cover what the government considers “luxury” improvements like a new pool.
There is no maximum loan figure that borrowers are allowed like with an FHA loan. The loan amount depends on whether or not a borrower obtains a traditional or streamlined FHA 203K loan. With the standard FHA 203K, homeowners can only receive 1) a loan comprised of the as-is value of the home plus the cost of the repairs, or 2) 110 % of the estimated value of the home after repairs are complete. With a streamlined loan, borrowers can receive a loan for the purchase price of the property and up to $35,000. In both cases homebuyers must put down 3.5% of the sum of the loan in order to qualify for the loan.
The property must qualify under normal FHA guidelines, and its value cannot exceed a specific amount which is determined by your area. Not all property types qualify for FHA 203K loans. The following property types qualify for the FHA 203K loan:
This type of loan comes with a few obvious benefits. It provides a simple solution to expensive home renovations for homebuyers. Interest rates are generally low, and the down payment is reasonable.
There are a few drawbacks to FHA 203K loans. First off, not all property types are eligible for the loan. Homebuyers should check to see if their property qualifies for assistance before purchasing a fixer upper. Also there is a cap to how much money can be received. Many lenders do not offer FHA 203K loans and the process to receive this type of loan is fairly lengthy (60 to 90 days).
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