FHA 203(k) loans fill a unique and important need for home-buyers. Mortgage lenders will not finance a house in need of substantial repairs, FHA offers a solution that helps both borrowers and lenders, insuring a single, long term, fixed or adjustable rate loan that covers both the purchase and rehabilitation of a property.
I'll be candid, FHA 203k loans can be a very tedious and time consuming process, however real estate professionals and potential homebuyers shouldn't shy away from the unique and vital advantages this program has to offer. Take the time to find an experienced lender who can guide you through the process and you will reap the rewards of finding a diamond in the rough.
Type of Assistance:
FHA 203K insures mortgages covering the purchase or refinancing and rehabilitation of a home that is at least a year old. A portion of the loan proceeds is used to pay the seller, or, if a refinance, to pay off the existing mortgage, and the remaining funds are placed in an escrow account and released as rehabilitation is completed. The cost of the rehabilitation must be at least $5,000 and lenders may charge some additional fees to cover reviewing construction plans and specifications, as well as higher appraisal and attorney's fees.
The extent of the rehabilitation covered by an FHA 203K loan may range from relatively minor (though exceeding $5000 in cost) to virtual reconstruction: a home that has been demolished or will be razed as part of rehabilitation is eligible, for example, provided that the existing foundation system remains in place. 203K insured loans can finance the rehabilitation of the residential portion of a property that also has non-residential uses; they can also cover the conversion of a property of any size to a one- to four- unit structure. The types of improvements that borrowers may make using Section 203(k) financing include:
- structural alterations and reconstruction
- modernization and improvements to the home's function
- new kitchen and baths
- expanding the living space
- replacing a heating systems and upgrading electrical
- elimination of health and safety hazards
- changes that improve appearance and eliminate obsolescence
- reconditioning or replacing plumbing; installing a well and/or septic system
- adding or replacing roofing, gutters, and downspouts
- adding or replacing floors and/or floor treatments
- major landscape work and site improvements
- enhancing accessibility for a disabled person
- making energy conservation improvements
George DeVine is a RI based mortgage banker with over 25 years of experience in the business. Visit George's website or give him a call for information.