The fastest growing home loan on the market is the FHA 203k. in 2008 there were 10,000 FHA 203k loans, this year there will be 80,000 and next year estimates are over 500,000 FHA 203k loans will be processed. What is this loan? and do you qualify? read the FAQ below.
What is an FHA 203k Loan?
The FHA 203k renovation loan program provides the funds for both the purchase and renovation of a home packaged into one mortgage loan. Once the home purchase is closed, the funds are held in escrow to pay for pre-determined renovation work done by approved renovation contractors.
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.
HUD’s 203(k) program can help you overcome this obstacle by enabling you to borrow funds for the purchase or refinance of a property plus the cost of making the repairs and improvements in one mortgage. The FHA-insured 203(k) loan is provided through approved lenders nationwide and is available to owners who will occupy the home themselves.
Down payment, credit qualification, loan limits and other requirements are the same as standard FHA loans. Additional guidelines are set forth specific to 203k loans to provide for renovation of the home.
How many types of 203k loans exist?
- The Standard 203k is intended for more complicated projects that involve structural changes, such as room additions, exterior grading and landscaping, or renovation that would prohibit you from occupying the residence. A Standard 203k is also used if your project requires engineering or architectural drawings and inspections.
- The Streamlined 203k is designed for less extensive improvements and for projects that will not exceed a total of $35,000 in renovation and related expenses. This version does not require the use of a consultant, architect, and engineer or as many inspections as the Standard 203k. As a result, when applicable, the Streamlined 203k generally becomes the simpler, less costly option.
Does the 203k program work for Single-family homes?
No. This program is eligible for use on 1 to 4 unit buildings only.
How does the appraisal work?
The appraiser is given a copy of the contractors bid documents to identify the repairs and remodeling to be done along with their costs. The appraiser then determines the value of the home after completion, “subject to” the improvements to be made. Up to 110% of this value may be used for loan approval purposes.
Can Investors Use a 203k?
A 203k loan is for use by owner occupants, local governments or non-profits. However, an owner occupant can use a 203k loan to purchase and renovate up to a 4-unit building as well as multi-use building in some situations.
Is there a time limit for renovation of the property?
The renovation must begin within 30 days of the closing of the loan and must be completed within the time frame established in the loan agreement. The total time for renovation must not exceed six months.