FHA 203(k) Loans: What You Need To KnowThe Federal Housing Administration’s section 203(k) insurance allow buyers to get financing for both the price of the house and the repairs needed and cost of rehabilitation in a single loan. Instead of going through the complicated process of buying the home, then secure another financing for the repairs or modernization, the FHA 203k program combines both in a single, long-term, fixed rate that covers both the acquisition and rehabilitation costs.
The idea of purchasing a rundown, dilapidated house to fix it up appeals to a large number of people. People seem to be fascinated with improving or fixing homes, including the idea of flipping houses for a living. Television shows, such as Flip or Flop, glamorize the hard work and the challenges faced when upgrading a home.
I believe that it is a good idea to consider the possibility of renovating a home; however, the fact of the matter is that it’s not a quick and easy job that will generate a significant profit in a short period. There are many elements to take into account when deciding which home to purchase, such as the state of the real estate market in the residential suburb as well as the extent and affordability of the improvements.
What is an FHA 203(k) loan?Are you looking at purchasing a house that needs repairs? If so, do you need to take out a mortgage loan for both the acquisition and the subsequent renovations? Fortunately, the Federal government has made options such as an FHA 203(k) home loan available for homeowners to fund the costs associated with these renovations.
In essence, the FHA 203(k) loan is a unique mortgage program designed to make it easy for you to purchase a decaying home that is in need of extensive renovations and repair. This mortgage is also known as a rehab loan. In other words, the primary purpose of a rehab mortgage is to finance the purchase and rehabilitation or renovation of your property. Should you already own your home and would like to renovate it, you can also apply for an FHA 203(k) loan.
Types of Improvements allowedIt goes without saying that a 203(k) loan will enable you to undertake certain renovations on your home. Fortunately, this list covers almost all of the upgrades your home is likely to need, including:
- Restoration and modifications of the external and internal structure
- Eradication of existing health and safety hazards
- Modernization and improvements to the home’s functional elements
- Improving your home’s energy efficiency capabilities
- Improvement to the external and internal appearance
- The replacement of the existing plumbing system.
- The replacement of the current roofing and gutters, etc.
- Renovation or installation of the floors
- Addition of a landscaped garden
Different types of FHA 203(k) home loansThere are two primary types of FHA 203(k) home loans, each with a separate maximum budget as well as several prerequisites:
Standard 203(k) LoanShould the renovations to your home require engineering or architectural drawings and inspections, you need to apply for this loan. Furthermore, the budgeted amount for the repairs should be over $35 000. In a nutshell, this type of loan program covers the tearing down and rebuilding of your house from the bottom up. The only requirement is that you keep the original house’s foundations.
Limited 203(k) MortgageThe limited or streamlined 203(k) loan is designed to finance improvements that do not exceed $35 000. It is also important to note that this mortgage only includes renovations that do not require engineering or architectural drawings. In essence, this loan covers minor repairs, replacement or repair to the roof and gutter system, interior or exterior painting, as well the addition of a patio.
Additional information regarding an FHA 203(k) loanHere is some pertinent information that is relevant to the 203(k) loan:
- You can only apply for an FHA 203(k) mortgage through a registered FHA provider.
- Once you have the loan for six months or more, you can refinance it into a conventional home mortgage.
- This program is only available for single home projects and includes family homes, torn-down homes where the foundation still exists, as well as the relocation of your current home to a new address.
- You usually have a maximum of six months to complete the renovations from the time that the loan is approved. However, it is possible to apply for a deadline extension.