FHA 203k Loan For Home Buyers And Homeowners Of Fixer-Uppers

What is FHA 203k Loan for home buyers and owners of repair accessoriesFHA 203k Loan For Buyers Of Fixer Uppers And Foreclosures:

Many homebuyers 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  • However, the house may be too small, outdated, not have enough bedrooms, not have enough bathrooms, need new mechanical systems, need a new kitchen, need new roofing, need new windows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  became almost non-existent to home buyers and homeowners
  • HUD’s FHA 203k loan program is an acquisition and renovation program for homebuyers seeking to purchase a fixer-upper

In this article, we will discuss and cover FHA 203k loan program for homebuyers and homeowners of fixer uppers.

Types Of FHA 203k Loan 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 is capped at $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
  • Structural work is not allowed on streamline 203k loans
  • The second 203k loan program is the Full Standard FHA 203k Loan program
  • There is no construction loan limit with the Standard 203k loan
  • The acquisition and renovation loan limit is capped at the maximum FHA loan limit for the county
  • The after completed value  needs to appraise out
  • 2020 FHA loan limit is capped at $314,760 on single family homes
  • Structural construction is permitted on the full standard 203k loan program

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

Which means buying a foreclosure or REO with a 203k loanHomebuyers 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 homebuyer.

Full 203k Standard Mortgage Loan

The Standard 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 program
  • 2nd story additions and room additions are very common with the Standard 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 203k mortgage programs.

  • Mortgage rates for the 203k loan programs are typically slightly higher than standard FHA loans
  • 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

What are the required advance payments for 203k loansThe 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.

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