Whenever people go to buy a home they look for the home that is pristine and pretty, sitting just off the side of the street, windows shining. The home seems to say ‘buy me, you’ll love me!’ Unfortunately the sad little house sitting two blocks down that is the ‘fixer-upper’ tells a different tale. Nobody wants to buy that house, and when one house on the street isn’t desirable, they all tend to feel the effects of that. In real estate, if there are homes in a neighborhood that need major repairs, the entire value of the neighborhood can drop. Because of this, the FHA 203k loan was created.
How You Can Benefit From This Loan
An FHA 203k Loan can only be acquired on a home that is in need of repairs. You won’t be able to get one of these loans on that pristine home that was mentioned earlier. For those homes, you’ll want a conventional loan or a standard Federal Housing Administration loan.
The house on the street with broken shutters and a roof that is sagging is the perfect candidate for a rehabilitation loan. The beauty of these loans is that they take into account the amount of money it is going to take to fix up the home, so you don’t have to come up with extra thousands after you’ve bought the home. In order to qualify for this loan, you do have to get the home appraised by an approved appraiser. They will be able to give you a list of the repairs that need to be done to make the home livable and improve the value. With this list you can get a dollar estimate which you then present to the lender. If the loan is approved, it will be approved with that additional dollar amount tacked on and you will be given access to the funds to get those repairs completed.
The beauty of this loan is that you can potentially get the property for a much better price than you would have bought it if it wasn’t a fixer upper. It does depend on the value of the loan you take out. FHA 203k loans can be approved for one of two amounts. The first amount is the estimated value of the home after repairs have been finished, plus 10%. So basically you’ll take out the loan for 110% of the potential fair market value of the fixed house. A second option is to take out the loan for the current value of the home in its dilapidated state, plus the estimated amount for repairs. Typically the loan that is given is for the amount that is the lesser of the two.
Refinance with FHA and Fix Your Existing Home
FHA 203k loans are not only reserved for the new home buyer. If you have an existing mortgage you can always refinance and get a fixer upper loan. These loans are great for existing homeowners because they make it possible to do the repairs or improvements that you may have wanted to do for years, but haven’t been able to find the funding for. A rehabilitation loan can be used for more than basic repairs. You can apply the loan to home improvements as well. This can include remodeling the kitchen or bathroom, home additions, or decks and patios. You can also use it for plumbing or siding, new floors, and to make the home energy efficient. So windows and appliances that will reduce your carbon footprint can be purchased with this loan. While there are limits to what you can do when you refinance with FHA, they aren’t as strict as you might think they would be.
So whether you are an existing homeowner looking to improve your residence, or a potential homeowner looking to purchase a fixer upper, this loan might just be the loan for you. It can give you the capital you need to turn that dilapidated, dysfunctional house into a beautiful home that you can live in and love for years to come. Through the Federal Housing Administration, it has become possible for more people to be homeowners and for the neighborhoods to stay beautiful and hold their value longer. That is the purpose of all the loans they offer. Since the loans are there, they hope that people will take advantage of them to improve the situations they – and their neighbors- live in.