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The 203(k) loan program offers borrowers the resources to rehabilitate a home that may be in need of repair, either the home that they currently live in, or that special fixer-upper opportunity. One single loan is used to pay for the purchase (or refinance) and the cost of renovating the home.
Made available to certain lenders by the U.S. Department of Housing and Urban Development (HUD), the FHA 203(k) program has already provided many buyers with the funds necessary to buy their first home, or greatly improve a move-up home. The FHA 203(k) loan is available to borrowers of all income levels, to homeowners who plan to occupy the house, and for homes with one to four units.
- 203K Eligible Borrowers:
- Owner Occupants - Purchase - Refinance
- Non- Profits
- Investors NOT allowed
- Types of 203K Loans:
- 30 or 15 year fixed rates
- One year ARMS
- Assumable to a qualified buyer, with no money down
- Eligible Properties:
- Single family dwellings
- Condominium
- Townhouse
- Mixed Use (Storefront)
- 1-4 Unit buildings- you can increase or decrease the number of units with this loan.
- Structural Alteration and Reconstruction:
- Changes for improved functions and modernization
- Elimination of health/safety hazards
- Changes for aesthetic appeal
- Plumbing, heating air conditioning, and electrical upgrades
- Well and/or septic repairs
- Roofing, gutters and downspouts
- Flooring, tiling and carpeting
- Energy conservation improvements
- Major landscape work and site improvement
- Access for the disabled
- Home Inspection:
The cost of your construction is estimated by an FHA Approved 203(k) consultant (estimator). The cost consultant assists you in determining the scope of repairs and the costs budgeted for the renovation job.
- Perform a home inspection to create preliminary costs estimates based upon FHA minimum property standards plus the scope of work as defined by the home owner/buyer.
- Once project has been determined, the cost consultant prepares a "work-write up" and 3 contractor bid packages are issued to the home owner/buyer.
- Appraisal:
The appraiser will be given a copy of your "work-write up" to estimate an after improved value for your new home or current home. We loan against that improved value thus giving you credit for the work to be performed.
- Other Eligible Costs:
(THESE COSTS MAY BE FINANCED INTO THE MORTGAGE LOAN)
- Contingency reserve (10%-20%)
- Up to 6 months PITI mortgage payments
- Permit costs
- Consultant fees
- Inspection and title update fees
- Architectural & Engineering fees (if needed)
- 7 Simple Steps to Buying a House Using FHA 203(k) Renovation Loan.
- Locate the home you want and submit a contract for purchase - contingent on a home inspection.
- After your contract is signed, schedule a home inspection with a 203(k) cost consultant to budget your renovation.
- If you approve the budget, the 203(k) cost consultant will prepare the work write up for the appraiser and lender, and will prepare three contractor bid packages for you.
- You can now bid your job to general contractors, or multiple sub-contractors.
- Appraiser uses work write-up to value home as if all work is completed.
- Loan closing (30 to 45 days average).
- Within 30 days of closing start project with general contractor, or multiple sub-contractors.
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What is an FHA Loan?
Home ownership rates in America continue to increase at a steady rate due in a large part to the implementation of FHA home loans more than seventy years ago. Over the years, FHA has helped Americans gain the financial independence that comes with owning a home. By creating jobs and reasonable mortgage rates for the middle class, financing military housing, and producing housing for the low income and the elderly, FHA has helped Americans become some of the best housed people in the world with over 73 million Americans currently owning their own homes. Statistics show that by 2005, home ownership rates in the US have climbed to 69 percent.
How it works
By serving as an umbrella under which lenders have the confidence to extend loans to those who may not meet conventional loan requirements, FHA's mortgage insurance allows individuals to qualify who may have been previously denied for a home loan by conventional underwriting guidelines.
FHA loans benefit those who would like to purchase a home but haven't been able to put money away for the purchase, like recent college graduates, newlyweds, or people who are still trying to complete their education. It also allows individuals to qualify for a FHA loan whose credit has been marred by bankruptcy or foreclosure.
Nuts And Bolts
The most popular FHA home loan is the 203(b). This fixed-rate loan often works well for first time home buyers because it allows individuals to finance up to 97 percent of their home loan which helps to keep down payments and closing costs at a minimum. The 203(b) home loan is also the only loan in which 100 percent of the closing costs can be a gift from a relative, non-profit, or government agency.
Insurance on FHA mortgages are often rolled into the total monthly payment at 0.5 percent of the total loan amount which is roughly half of the price of mortgage insurance on a conventional loan. After five years or when the loan balance reaches 78 percent, the additional mortgage insurance is typically met and therefore drops off the total monthly payment.
Guidelines
It is not necessary to meet a minimum income requirement in order to qualify for a FHA loan but debt ratios specific to the state in which the home will be purchased have been put into place to prevent borrowers from getting into a home they cannot afford. This is done through a close analysis of income and monthly expenses.
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About 203KFHALoan.com
Hi my name is Scott Hudspeth I am a broker with Amerifirst Home Mortgage in Portage MI and I want to help make your new home a reality. I can help you get any type of mortgage loan you need including FHA Loans, FHA 203k rehabilitation loans, Low/ No down payment loans, interest only mortgages, reverse mortgages, and more. Visit my full website at www.scotthudspeth.com for more on the other services I can provide.
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