Perhaps you have never heard of the FHA 203k loan, but it is one of the best loans out there - especially now. Why now? There are a lot of foreclosures on the market. Many have deferred maintenance. Some have been vandalized. Most need at least some repairs, improvements or appliances and the FHA 203k loan is the perfect loan product for these situations. Realtor.com says that these loans are designated for homes which are damaged or sorely in need of rehabilitation, but that's not all you can use them for. You can even use a 203k for a refinance if the home you already own needs some updating!
This loan program gives you the money to buy the home PLUS make acceptable improvements using an approved contractor. An additional bonus is that the minimum required downpayment is only 3.5%! The following example is over-simplified but will give you the general idea. Say you were buying a home for $100,000 and you want to do $20,000 in repairs. Your total acquisition cost is $120,000. 3.5% of that is $4,200! You will still need some money for closing costs and pre-paids but you can ask the seller for up to 6% of the sales price towards those fees.
There are two kinds of 203k loans - streamline and full. With a streamline 203k, you can have non-structural repairs up to $35,000. If you need to do anything structural or if the cost exceeds $35,000 then you need a full 203k. With a streamline 203k, your contractor gets half of the money for the improvements at your closing. The balance is disbursed when all the work has been completed. With a full 203k, you hire a HUD approved consultant and he works with your contractor to create the list of items which need to be done and the cost for that work. The HUD consultant serves as a construction supervisor because he actually does inspections throughout the process. Funds for the work are disbursed in draws as work is completed throughout the process.
What sort of work can you do on a streamline? The list is long!
- Repair or replacement of roofs, gutters & downspouts
- Repair, replacement or upgrade of existing HVAC systems
- Repair, replacement or upgrade of plumbing and electrical systems
- Repair and replacement of flooring
- Exterior and interior painting
- Minor remodeling such as kitchens or bathrooms which do not involve structural repairs
- Weatherization in cluding storm windows and doors, insulation, weather stripping, even new windows and doors
- Purchase and installation of applicances including stoves, refrigerators, dishwashers, microwaves, washers & dryers
- Repair, replace or add a deck, patio or port
- Basement finishing and remodeling which is not structural
- Exterior siding
- Septic system and or well repair or replacement
There are more, but these are the big ones. So when you are looking to purchase a home, don't eliminate those homes that need a little TLC - the FHA 203k loan is the perfect mortgage for these! For more information, call me or go to HUD's website. Make your run-down home into your dream home!