People almost automatically think that home loans are exclusive to purchasing homes that are either already built or have not at all been built yet. While there are some who know that purchasing blemished homes is a possibility, not everyone is aware that one may apply for a loan that does just that PLUS cover repairs.
If you’re one who’s been looking at homes that have great potential if only they encounter divine reconstruction, then FHA’s 203K can be the answer to your prayers.
As opposed to commercial mortgage loans, 203k loans make construction, home acquisition, and re-operating expenses available in one mortgage. People often avoid houses that need renovation thinking that they will not be able to come up with money to take care of repairs or replacements.
Luckily, a loan that covers all of these enables a borrower to make up for it through payments in reasonable installments as opposed to having to pay for a lump sum at once.
That established, how is an FHA 203K loan advantageous?
One is able to refinance an existing mortgage and add the money needed to finish re-architectural labor onto the loan’s balance. While it is true that there are numerous things that make this distinct home loan similar to usual FHA loans, the home improvement aspect allows these loans to be somewhat complex for future borrowers.
Presently, there are two 203k loan types: Standard and Streamlined. The amount you intend to spend and what particularly you’re using it for will determine which one is ideal for you.
To elaborate, a Streamlined loan may allow a borrower to exhaust a maximum of $35,000 in home replacements and repairs. Anything that may not call for drastic renovation or architectural activity may fall under this. There is also no least expected amount to this. That said, if you’re eyeing on changing your carpet or fixing your kitchen countertop, you can choose to expend a few thousand dollars into your loan without having to use cash yourself. The agreement is for these repairs to start immediately within 30 days of the borrower’s loan closing. A maximum of 6 months is also given to complete what needs to be done.
To clarify, luxury additions such as tennis courts, hot tubs, or swimming pools are not covered by this loan. Choose this only if you mean to improve and replace certain house parts and areas.
Oppositely, a Standard loan is one that includes heavy renovation and drastic architectural changes. Examples of this FHA loan type may be redesigning bathrooms, redoing bedrooms, adding an attic, or essentially anything that adds to the value of the property. Similar to Streamlined, luxury add-ons are still a no-no.
The renovation element aside, a key difference between Streamlined and Standard is that for Standard, one is required to work with an HUD-approved personnel to oversee construction. The receiving end of the loan is allowed to finance as much as 6 months of mortgage fees onto his 203k loan if, at any time during construction, the house is uninhabitable.
It is also important to remember that FHA loans in general, whether FHA rehab loan or not, require borrowers to pay for mortgage insurance. Those who go for 203k loans also have to pay for other out-of-pocket expenses such as the supplemental payment of 1.5% of the whole fixing cost or $350. Attorney and appraisal fees, and title policy payments are also covered by the borrower. Payments are determined by how massive these projects are, although standard rates may range from $400 to $500.
If you’ve made up your mind and know that this loan type is for you, work on getting what you need to be done. According to FHA.com, the following documents are required for application:
- Address to your place of residence (past two years)
- Social Security numbers
- Names and location of your employers (past two years)
- Gross monthly salary at your current job(s)
- Pertinent information for all checking and savings accounts
- Pertinent information for all open loans
- Complete information for other real estates you own
- Approximate value of all personal property
- Certificate of Eligibility and DD-214 (for veterans only)
- Current check stubs and your W-2 forms (past two years)
- Personal tax returns (past two years), current income statement and business balance sheet for self-employed individuals