FHA 203k Loan For Home Buyers And Homeowners Of Fixer-Uppers
FHA 203k Loan For Home Buyers And Homeowners Of Fixer-Uppers
FHA 203k Mortgage For Buyers Of Fixer Uppers And Foreclosures:
Many home buyers look at dozens of properties if not hundreds of properties and many cannot get their perfect home.
- They may get a great neighborhood
- However, the house may be too small, outdated, not have enough bedrooms, not have enough bathrooms, need new mechanical systems, need a new kitchen, need new roofing, need new windows
- Or the property may need a complete gut rehab or tear downs
- After the real estate and credit meltdown of 2008, construction and bridge financing is almost non-existent to home buyers and homeowners
- HUD’s 203k program is the program for homebuyers seeking to purchase a fixer-upper
In this article, we will discuss and cover FHA 203k Mortgage For Home Buyers And Homeowners Of Fixer-Uppers.
Types Of FHA 203k Programs
FHA now offers two types of acquisition and construction mortgage loan programs all in one loan and closing.
- The first is the FHA 203k streamline mortgage loan program
- The FHA 203k streamline limits the maximum construction
- The rehab loan limit to $35,000
- It can be used for non-structural rehabs such as kitchen and bathroom remodeling, new flooring, painting, millwork, mechanical systems, windows, roofing, siding, basement remodeling, attic remodeling, and other non-structural remodeling projects
- The second 203k loan program is the Full Standard FHA 203k Loan program
- There is no construction with the Standard 203k loan
- The rehab budget limits as long as the after appraised value matches the construction and everything goes here
- Structural construction is permitted
Room additions, second-floor additions, gut rehab, and even tear downs are permitted with a Full Standard 203k Loan program.
FHA 203k Streamline Mortgage Loan
A home buyer can now purchase a foreclosure, short sale, or REO home that is in need of minor repairs.
- The FHA 203k Streamline Purchase loan program enables the home buyer to seek an acquisition and construction mortgage loan at the same time with one closing
- This program is for home buyers that purchase a home that needs minor repairs such as kitchen remodeling, bathroom remodeling, attic remodeling, basement remodeling, new windows, appliances, roofing, flooring, and other non-structural repairs
- The maximum amount of the FHA 203k Streamline purchase loan program is $35,000 which includes costs such as to permit fees and reserves associated with the rehab
- Luxury items such as pools, tennis courts, and basketball courts are not allowed
Room additions and second-floor additions are not allowed.
Buying Foreclosure Or REO With 203k Loan
Homebuyers can get great deals in buying a foreclosure or REO property.
- Many foreclosures and REO’s are not financeable
- This is because they cannot pass the appraisal inspection
- Many foreclosures and REO’s are in dire need of repairs such as new flooring, kitchen, bathrooms, and many have been occupied by squatters and are not habitable
- Most mortgage lenders who own foreclosures and REO’s on their books do not want to spend a dime on rehabbing the property and want to sell it as is
- Unfortunately, most of these properties can only be sold for cash buyers
- This is because mortgage lenders will not lend of a property that is not habitable
- With a 203k Loan, homebuyers can get some great deals on a home
- They can also get the construction money to fix and customize the property the way they want
Most mortgage lenders who own foreclosures and REO’s are eager to entertain a 203k Loan approved home buyer.
203k Standard Mortgage Loan
The Standard FHA 203k mortgage loan program has no construction limit as long as the property appraises out after repairs.
- Unlike the FHA 203k Streamline mortgage loan program, structural changes and room additions are allowed with the Standard FHA 203k mortgage loan program
- 2nd story additions and room additions are very common with the Standard FHA 203k mortgage loan program
Complete gut rehabs and tear downs are permitted with a Full Standard 203k Loan.
Qualification For 203k Loan
Any home buyer that qualifies for the traditional FHA loan program can qualify for both the FHA 203k Streamline mortgage and Standard FHA 203k mortgage loan programs.
- Mortgage rates for the FHA 203k loan programs are typically slightly higher than the standard FHA loan program
- The appraisal that is required is an as-is property appraisal and as-complete property appraisal
- The general contractor cannot be a family member and the general contractor needs to be licensed, insured, and bonded
- The general contractor is responsible for the work of all sub-contractors
The homeowner has the final say of authorizing the draw for the general contractor.
Down Payment Required On 203k Loans
The FHA 203k mortgage loan applicant needs a 3.5% down payment on the as-completed appraised value.
- For example, if a home buyer purchases a home for $100,000 and pursues a Full Standard 203k Loan and the estimated cost of repairs is an additional $100,000, the total cost of the home purchase and rehab is $200,000
- The home buyer is required to have 3.5% of the $200,000 which is a $7,000 down payment
- If you currently have a home in need of repairs, we can also refinance your current mortgage loan via an FHA 203k Loan so you can update or do a major renovation on your home
Most FHA 203k Loans take 45 days to close from the date of the mortgage application submission.
Closing Costs On 203k Loans
On any home purchase transaction, there will be closing costs which cover any costs and fees associated with the origination of the mortgage loan as well as third party charges and fees such as title charges, appraisal fees, inspection fees, attorneys fees, homeowners insurance fees, recording fees, pre-paid, and any other fees and costs. Most homebuyers do not have to worry about closing costs because closing costs can be covered through a seller’s concession towards a home buyer’s closing costs or a mortgage lender credit towards home buyers closing costs. Structuring the purchase contract the right way is key when a home buyer wants to purchase a home through a 203k Loan.
Gustan Cho Associates