This BLOG On Benefits Of Using FHA 203k Rehab Loans To Buy Fixer-Uppers Was Written By Massimo Ressa of Loan Cabin: Alex Carlucci was the co-contributing writer
Home buyers can purchase fixer uppers with FHA 203k Rehab Loans:
- Homebuyers shopping for a home and run into a home that is perfect but needs updating or major repairs, they are in luck
- HUD, the parent of FHA, has FHA 203k Rehab Loans
- 203k Loans enables homebuyers who want to buy fixer-uppers or foreclosures in need of repairs to get an easy construction and acquisition mortgage loan all in one closing
- 3.5% down payment of the after repair value of the home is required
- Homeowners can customize fixer upper to their likings
- They can even customize it by adding rooms by doing second story additions and expanding the home by doing room additions
- Homeowners can gut and rehab the home and add everything new such as the following:
- attic space
- new windows
- roof, siding
- HVAC systems
The FHA 203k Rehab Loans has been created to implement home buyers who want to finance the cost of home repairs into the new home purchase mortgage loan. In this blog, we will cover and discuss using FHA 203k Rehab Loans to buy a -fixer-upper.
Financing Terms Of FHA 203k Loans
Financing terms of FHA 203k Loans include the original acquisition price of the home as well as the cost of improvements to the home.
- Home buyers seeking FHA 203k Rehab Loans require a minimum credit score of 580
- The down payment required is 3.5% of the after improved value of the home
Benefits Of 203k Loans
Construction loans have been popular prior to the 2008 Real Estate and Credit Collapse.
- Now it is next to impossible for a home owner to get a construction or bridge loan unless the homeowner has a lot of equity in their homes
- With an FHA 203k Rehab Loan, a homeowner can get construction financing at the same time they get a home purchase loan
- Or can do an FHA 203k Rehab Refinance Mortgage Loan with only a 3.5% down payment or 96.5% Loan to Value
Low Mortgage Rates On Construction Portion Of FHA 203k Mortgages
Both the acquisition and construction financing interest rates are the same.
- In general, construction financing is considered risky
- So lenders normally charge a substantially higher interest rate on construction and bridge financing interest rates
- With FHA 203k Rehab Loans, whatever the acquisition interest rate is, so is the construction portion’s interest rates
- For example, if a mortgage rate is 5.25% on FHA mortgage rate, the 5.25% will be the whole cost of the construction budget as well for the term of the 30-year fixed-rate FHA insured mortgage loan
FHA Rehab Loan History
The United States Department of Housing and Urban Development is the parent of the Federal Housing Administration, also known by many as FHA.
- FHA has implemented the FHA 203k Loans to promote the revitalization of neighborhoods where homes need rehabilitation and repairs for one to four-unit residential units
- With 203k Loans, borrowers can use a single mortgage loan for the acquisition and/or refinance of their home plus the cost of repairs of rehabbing their home
- Property types include owner occupant properties that are the following:
- FHA Approved condominiums
- Single-family homes
- Two to four-unit properties
- 203k Loans is not available for second homes or investment properties
- Owner-occupied properties only under 203k Lending Guidelines
Guidelines On FHA 203k Loans
One to four-unit owner occupant properties is eligible for 203k Loans.
- The home has to have been built for at least one year
- FHA 203k Rehab Loans allow for a homeowner to convert a one family unit to a two to four-unit family home
- Properties that qualify for FHA 203k Rehab Loans include the following:
- modular homes
- single-family homes
- two to four-unit residential properties
- Cooperatives also are known as co-ops, do not qualify for 203k Loans
- Total tear downs or partial teardowns of existing homes and rebuilding it allowed as long as a large percentage of the original foundation remains
- Borrowers can take an existing modular home and relocate it to another location with a built foundation with 203k Loans.
Types Of 203k Loans
There are two types of 203k Rehab Loans.
- The FHA 203k Streamline Loan has a maximum construction allowance of $35,000 and no structural changes or room additions are allowed
- Borrowers can do minor repairs such as the following:
- kitchen remodeling
- bathroom remodeling
- attic remodeling
- basement remodeling
- new windows
- new appliances
- HVAC systems
- decks and porches
- other simple repairs
The Standard FHA 203k Rehab Loans allows major repairs such as structural changes, room additions, plus there are no construction budget limits and the cost of construction can exceed $35,000.
About The Author Alex Carlucci And Massimo Ressa
Massimo Ressa is the author of this blog and a contributing writer for Gustan Cho Associates Mortgage Group. Massimo Ressa is also the Chief Executive Officer of Loan Cabin Inc. Massimo Ressa has a team of regional, area, branch, and sales managers nationwide. Loan Cabin Inc., is a national direct lender with no lender overlays on government and conventional loans and is headquartered in Lombard, Illinois with loan officers nationwide. Alex Carlucci was the co-contributing writer for this blog. Alex Carlucci is also an associate contributing editor for Gustan Cho Associates.