A 203k is a loan program offered by the Federal Housing Administration that was created to spur neighborhood rehabilitation and greater homeownership opportunity by making it possible to take out a mortgage on a “risky” property. By risky, I mean in serious need of remodel and repair. These loans include all refurbishment costs with the purchase price of the home, providing the family with the funds they need to make it comfortable, safe and beautiful.
FHA 203k Guidelines
As with all federally-backed loans, homeowners will benefit from low down payments and less stringent requirements. These loans may also be used to refinance and pay for remodeling to a home you already live in. A wide range of repairs qualify.
Borrowers may choose from a regular and a streamlined mortgage option. The former is used for properties that have structural damage, and the latter is for those that don’t. A must for either is that the family plans to live in the home they are remodeling.
Let’s take a look at what types of homes qualify for this loan option. As long as a portion of the foundation is useable, properties that must be completely demolished are allowed. Existing construction is also eligible if it is at least a year old. Multi-use property (such as a commercial building with an attached residence) is covered as long as the repair is made to the residential area. Everything from single to four family dwellings, condos that are FHA approved, and homes that need to be moved to a new foundation can qualify.
FHA 203k guidelines are very specific when it comes to the kinds of repairs you can make to your potential home. The list includes: disability access; heating, ventilation and air conditioning; plumbing; roofing and flooring; energy conservation; kitchen remodeling; new appliances; room additions or second-story additions; decks and patios; bathroom remodeling; new siding; finishing an attic or basement; and site grading.
Bear in mind that labor costs must be included in the loan even if you intend to perform repairs yourself, all repairs must be completed within six months of the closing date and individual lenders have their own lists of allowable remodeling projects.
FHA 203k Cost and Documentation
This type of federal loan is written up for the purchase price of the home and all repairs to be made. A detailed proposal of the required work with a price-per-item breakdown is provided as evidence of the remodel cost. Some borrowers choose to hire a special consultant to prepare this report. His fees may be included in the price of the loan.
The loan applicant has to have proof of income, proof of assets, and credit reports. An FHA-approved appraisal is performed on the property and its projected worth after repairs is calculated. This helps to assess whether or not the project is an intelligent choice financially and makes the loan a little less risky for the lender. However, this number is by no means a guarantee of an increase in market value. Therefore, you can expect to pay higher interest rates than you would on other types of loans.
Families who cannot afford a finished home are the ones who benefit most from this program. Down payments are usually lower than they would be even for other kinds of federal loans. You must be willing to do a little leg work to get one, though. Many lenders do not even offer them, so you will have to search out a provider that meets your needs. Not all properties are eligible for a 203k. Preparation of documentation and the general bureaucracy is time consuming. There is also a sixty to ninety day closing period for the loan.
The intention for these types of loans is to allow buyers to spend very little on a “fixer-upper” and have all the cash they need to turn it into a viable asset for their family. Properties that are condemned, unwanted eye-sores can suddenly brighten up whole communities with a fresh coat of paint and some new siding. This has the potential to change the quality of life and the environment, attracting more families to come in and better the neighborhood. Now imagine this happening all over the country, one hard-working family at a time. The FHA 203k is the best and cheapest way to accomplish this. With a little time, some counseling from the right people, and a lot of love, the effort will be well worth your end result.