Are you interested in purchasing a distressed property, but can’t obtain a standard FHA loan because the property does not meet the FHA minimum property standards? If so, then the FHA 203 (k) program could be the answer.
The FHA 203(k) program allows borrowers to obtain a loan to purchase the property and include the cost of repairs in the loan. The home improvement loan also allows up to 6 months of mortgage payments as part of the improvement escrow if you are unable to occupy the property and must rent while repairs are made.
With this type of financing, the funds for repairing and improving the property are held in escrow and released as work is completed. There is a $5,000 minimum to be used for eligible improvements on the existing structure on the property. Minor or cosmetic repairs may be included after satisfying the first $5,000 in repairs.
You can expect the interest rate on the FHA 203(k) to be slightly higher than a standard FHA loan, and there are additional fees for the construction portion of the loan. Today the rate for a FHA 203(k) is approximately 5% compared to 4.75% for a standard FHA loan.
Like the standard FHA loan, the low down payment is an important tool for expanding homeownership and improving communities.
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