FHA 203K Loans
The purchase of a house that needs repair is often a catch-22 situation, because the bank won't lend the money to buy the house until the repairs are complete, and the repairs can't be done until the house has been purchased.
FHA's (Federal Housing Authority) 203(k) program can help you with this situation, and allow you to purchase or refinance a property, plus include in the loan the cost of making the repairs and improvements. The FHA insured 203(k) loan is provided through Bill Cunningham at Neighborhood Funding. It is available to persons wanting to occupy the home.
The down payment requirement for the home buyer is approximately 3% of the acquisition, and repair costs of the property.
The 203(k) loan includes the following steps:
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A potential homebuyer locates a fixer-upper, and executes a sales contract after doing |
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The homebuyer then contacts Bill Cunningham at Neighborhood Funding, and arranges for a detailed proposal showing the scope of work to be done, including a detailed cost estimate on each repair or improvement of the project. |
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The appraisal is performed to determine the value of the property after renovation. |
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If the borrower is approved, the loan closes for an amount that will cover the purchase or refinance cost of the property, the remodeling costs and the allowable closing costs. The amount of the loan will also include a contingency reserve of 10% to 20% of the total remodeling costs, and is used to cover any extra work not included in the original proposal. |
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At closing, the seller of the property is paid off and the remaining funds are put in an escrow account to pay for the repairs and improvements during the rehabilitation period. |
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The mortgage payments and remodeling begin after the loan closes. The borrower can decide to have up to six mortgage payments (PITI) put into the cost of rehabilitation if the property is not going to be occupied during construction, but it cannot exceed the length of time it is estimated to complete the rehab. |
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Escrowed funds are released to the contractor during construction through a series of draw requests for completed work. To ensure completion of the job, 10% of each draw is held back. This money is paid after the lender determines there will be no liens on the property. |
Types of repairs that are allowed under the 203K loan:
· Repair/Replacement roofs, gutters, and downspouts
· Repair/Replacement/Upgrade of existing HV AC systems
· Repair/Replacement/Upgrade of plumbing and electrical systems
· Repair/Replacement of existing flooring
· minor remodeling such as kitchens, which does not involve structural repairs
· Exterior and interior painting
· Weatherization: including storm windows and doors, insulation, weather stripping, etc.
· Appliances - Purchase and installation are included. Appliances may include free-standing ranges, refrigerators, washers/dryers, dishwashers, and microwaves
· Lead-based paint stabilization or abatement of lead-based paint hazards
· Repair/Replace/Add exterior decks, patios, porches
· Basement finishing and remodeling, which does not involve structural repairs
· Basement waterproofing
· Window and door replacements and exterior wall re-siding
· Septic system and/or well repair or replacement
· Improvements for accessibility for persons with disabilities
Types of repairs not allowed under the 203K loan:
· Major rehabilitation or major remodeling, such as the relocation of a load bearing wall
· New construction (including room additions)
· Repair of structural damage
· Repairs requiring detailed drawings or architectural exhibits
· Landscaping or similar site amenity improvements
· Any repair or improvement requiring a work schedule longer than six (6) months
· Rehabilitation activities that require more than two (2) payments per specialized contractor
To find out more, and apply for a FHA 203K loan, please contact Bill Cunningham at Neighborhood Funding, 727-644-7541 or bill@spectacularhomeloans.com
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