FHA 203k Loan

FHA 203k Loan
Gustan Cho Associates

FHA 203k Loan Programs

FHA 203k Loan 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  They may get a great neighborhood, however, the house may be too small, outdated, not have enough bedrooms, not have enough bathrooms, need new mechanical systems, need new kitchen, need new roofing, need new windows, or may need a complete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 FHA 203k Loan program is the program for home buyers seeking to purchase a fixer upper.

Types Of FHA 203k Loan Programs

FHA now offers two types acquisition and construction mortgage loan program all in one loan and closing. The first is the FHA 203k streamline mortgage loan program which limits the maximum construction and rehab loan limit to $35,000 and can be used for non-structural rehab 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 FHA 203k loan program is the Full Standard FHA 203k Loan program which there is no construction and rehab budget limit 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 FHA 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 see 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 permit fees and reserves associated with the rehab. Luxury items such as pools, tennis courts, and basketball courts is not allowed. Room additions and second floor additons are not allowed.

Buying Foreclosure Or REO With FHA 203k Loan

Home buyers can get great deals in buying a foreclosure or REO property.  Many foreclosures and REO’s are not financeable 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 because mortgage lenders will not lend of a property that is not habitable.  With a FHA 203k Loan, home buyers can get some great deals on a home and 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 FHA 203k Loan approved home buyer.

FHA 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 FHA 203k Loan.

Qualification For FHA 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.

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 FHA 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 a 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 A FHA 203k Loan

On any home purchase transaction, there will be closing costs which covers 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-paids, and any other fees and costs.  Most home buyers do not have to worry about closing costs because closing costs can be covered through a sellers concession towards a home buyer’s closing costs or a mortgage lender credit towards a home buyers closing costs.  Structuring the purchase contract the right way is key when a home buyer wants to purchase a home through a FHA 203k Loan.

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Gustan Cho Associates

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Email: gcho@gustancho.com