What exactly is an FHA 203k mortgage?
An FHA 203k mortgage is essentially a regular FHA mortgage. However, it has a special component which is an escrow account that allows the customer to be able to purchase or refinance a property and rehabilitate or renovate that said property. This little piece that's attached to the loan allows the customer to be able to do awesome projects! Things as simple as re-carpeting, tiling, painting, simple cosmetic repairs, and all the way to dealing with full-scale rehabilitation projects. This includes, but is not limited to, adding square footage, putting a second floor on a rancher, and taking a home down to the foundation and basically starting new. All of these things are allowed using the FHA 203k program.
Why use the FHA 203k program?
With the current environment and the amount of inventory that is out there, a lot of properties, if not really all, have some sort of rehab that needs to be done. I tell customers all the time, if you're looking to buy a home, there's no reason not to at least look at 203k as an option because there really is no move-in ready home. Move-in ready homes are called new construction or are homes that have already been completely renovated. Still, that newly renovated home is not your creation, it's the creation of someone else. The FHA 203k program allows for you to be able to completely, 100%, design the home the way you want it, which is what the 203k was designed for!
The great part is the FHA 203k program comes in two flavors!
The two flavors are a Streamline 203k, and the standard, or Full 203k. They are very different programs.
- The Streamline 203k Program:
This program limits you to $35,000 in work. What I try to tell everybody, though, is that $35,000 is really about $30,000, because once you add in the fees, all of the updates and everything else that goes into the project, you really are limited to $30,000 in work that can be completed. I get a lot of calls from people who say, "Well, I want to do the Streamline..." And I totally understand, but the thing that you need to consider is that the Streamline 203k doesn't always mean that your loan amount is $35,000 or below. We require that you do a Full 203k if the property is a bank-owned or vacant property. In this situation, you couldn't use the Streamline 203k- even if it was only $5,000 worth of work! These are instances where the Streamline 203k doesn't work, even though the loan amount is $35,000 or below. The Streamline 203k is really for small rehabilitation projects. This means we allow for you to be able to do cosmetic repairs, small rehab projects, kitchen, bathroom- as long as it's nothing structural. Structural repairs are not allowed to be done with a streamline. The Streamline 203k is simply to be used for small projects, cosmetic in nature, etc.
- The Full 203k Program:
The Full 203k program is great because it allows you to basically do whatever you want! It gives you a clean slate, a clean palate per se, so that you can actually sit there and start a home and do whatever you want- knock down walls- if its a rancher add a second floor- basically do whatever it is your heart desires! Whatever the home can appraise for and basically whatever you can think of doing, you can! Think of this as the clean slate- that's what this allows you to do. If you see a home in the neighborhood you want, but its not the home you want, think about the 203k- realize that if you can get a property for a good price, you can do whatever you want to that property. I've seen some amazing projects!
Don't hesitate to contact me!
I'd be happy to share more in subsequent blog posts. That's the major information regarding the FHA 203k programs. The program is not limited, other than by the FHA limits, which can be searched on the FHA Web site. Reach out to me, talk to me about what questions you have, what's allowed to be done, what's not allowed to be done...I'm here to help! Thank you very much and please keep reading.