|
203K Loan Basics
Often people wish to fix up their home but lack the funds to do so.
Now you can!
Learn how you make a home like this:
Into a home like this:
The FHA 203K loan is a HUD approved home loan. The difference is, it includes money for home repair and remodeling. The 203K loan may allow you to have the home you always wanted. This is a terrific loan program, and not too complicated. What typically complicates this program is when an un-educated borrower is coupled with an inexperienced loan officer.
When you start looking for a home and say something along the lines of "This house would be great if it was updated" or "We can't sell our home but need to make cosmetic improvements however we do not have equity" or "Love the neighborhood, perfect size house, but the orange shag rugs are awful and the kitchen needs to be ripped out" - IT'S TIME TO TALK ABOUT THE 203k with an Approved Lender.
Imagine buying a house cheaper because it needs cosmetic work and making it your beautiful home!
How Does a Streamlined 203K Loan Work?
It used to be that you bought a home and then applied for a home equity loan to fix it up, resulting in two loans. But many lenders won't make rehab loans. Some won't fund equity loans at closing, especially if there is no equity. A Streamlined 203K loan is figured into the original loan balance, resulting in one loan.
- It can be an adjustable rate or fixed rate mortgage.
- The mortgage balance can exceed the purchase price of the home
- Borrowers are not required to hire professional consultants, licensed engineers, or architects
- The appraiser or home inspector can put together a list of recommended repairs and improvements
Eligible Repairs & Improvements
The Streamlined 203K loan allows for simple repairs that can be easily estimated and completed. Many are considered light cosmetic repairs, but some will require hiring a licensed contractor if it falls out of the borrower's area of expertise. Here is an approved list of repairs / improvements from HUD:
- Roofs, gutters and downspouts
- HVAC systems (heating, venting and air conditioning)
- Plumbing and electrical
- Minor kitchen and bath remodels
- Flooring: carpet, tile, wood, etc.
- Interior and exterior painting
- New windows and doors
- Weather stripping & insulation
- Improvements for persons with disabilities
- Energy efficient improvements
- Stabilizing or removing lead-based paint
- Decks, patios, porches
- Basement completion and waterproofing
- Septic or well systems
- Purchase of new kitchen appliances or washer / dryer
Special Conditions & Terms
- No minimum loan balance required.
- Borrowers must occupy the property.
- Property cannot be vacant for more than 30 days.
- Work must be completed within six months.
- Work must be professional.
- If job requires a permit, borrowers must get a permit and a sign-off.
- Work must commence within 30 days from closing.
Repairs Not Permitted
- Landscaping or yard work
- Major remodeling
- Moving a load-bearing wall
- Room additions or add-ons to the home
- Fixing structural damage
Requirements to Perform the Work
- Borrowers can select among licensed contractors.
- The lender will review the contractor's experience, background and referrals.
- The lender will want a copy of the contractor's estimate and the agreement between the contractor and borrower.
- Borrowers can also arrange to do some or all of the work under a "self help" arrangement.
- Do-it-yourself projects require providing the lender with documentation supporting the borrower's knowledge, experience and ability to perform the necessary work.
Disbursement of Payments
- Maximum of two payments to each contractor, including the borrower, providing the borrower works under a "self help" plan.
- No more than a 50% advance is allowed.
- Do-it-yourself allowances do not include labor; only materials costs are allowed.
- Final payment is paid after submission of evidence of payment to sub-contractors / suppliers or other possible lien claimants.
A 203k loan is simply a FHA loan with a twist.
Through this loan program, renovations are completed after closing of the loan by using a portion of the loan proceeds to cover improvement costs. Funds are held on loan reserve to pay for renovations in a managed account with the mortgage company, earning you interest during the renovation period. "Draw" requests throughout stages of renovation release funds to your contractor's).
Our Professional Suggestion to have this type of loan run smoothly:
1 - Get pre-qualified for your Total Cost of Acquisition.
2 - Get referred to an Envoy Certified 203k Realtor. (Forward to cert realtor page)
3 - Get referred to an Envoy Certified 203k Contractor.(Forward to cert contractor page)
4 - Fill out a pre-approval mortgage application with lender.
5 - Find a house that may or may not need rehab/remodeling.
6 - Discuss what improvements you would like to have done with contractor you select.
7 - Have the realtor do a Market Analysis for the home.
8 - Analyze current value in as-is condition with after-improved value.
9 - Add cost of improvements to as-is value.
10 - Determine if purchase plus rehabilitation is worth acquisition.
To speak with an Approved 203k Lender now, click on the chat now button or request additional information below.
GET THE Homebuyer 203k Kit. Simply fill out the form below.
Learn about Job Loss Protection - In case you lose your income, keep your mortgage payments current. Learn More.
|
