203 K Renovation Loan       

Buy That Home That Needs Work and Roll The Costs Into The Loan 

Almost everyone is aware and knowledgeable about the FHA 203b loan. This the most common FHA mortgage product available that has gained popularity over the past three years. It is available for new and existing one to four family homes, condos and townhouses. Borrowers with a satisfactory credit record, verifiable employment and income find this an easy and affordable loan to obtain. For those with a credit score of 580 and above also continue to enjoy the low required down payment of 3.5%.

With the current real estate market taking a downward turn, the condition of available homes for sale has also declined. Foreclosures and short sales are flooding the market making it difficult for buyers to find homes that are in decent condition. As these homes are often neglected and abused, many buyers will turn away without knowing the real potential of a home beyond what they see. Here is where the FHA 203k loan product comes to the rescue. It is for the fixer upper and homes that have not been maintained.

The FHA 203k is available for owner occupants only and for single to four family existing homes that have been completed for at least one year. For homes that are in need of repair, maintenance or rehabilitation, this is a great product offered through FHA. It can be used for repairs such as painting, room additions, decks, patios, bathroom and kitchen remodeling, appliances, finishing an attic or basement, new exterior siding, heating or air conditioning, plumbing, roofing and flooring. HUD does have some regulations such as energy efficiency and structural requirements such as caulking, insulation, ventilation and smoke detectors.

These FHA 203k loans are processed as normal except that the money for repairs can also be rolled into the loan. An as-is appraisal is completed with the appraisers estimate of the value of the home after repairs and improvements are done. The borrower is required to submit a proposal of the necessary work which includes a detailed cost estimate. The amount that can be borrowed is the as-is purchase price plus the rehab costs or 110% of the expected value of the property after repairs have been completed. In other words, an as-is price of a home at $150,000 will also allow $15,000 borrowed for rehab. The rehab money is kept in an escrow account and is released as the work is done. FHA requires that all rehab be completed within 6 months. As only certain lenders will offer an FHA 203k loan, they may also have their own requirements. The interest rate is also higher than a normal FHA mortgage and the amount of time to process this type loan is usually longer.

As real estate continues to be saturated with a variety of homes and an abundance of foreclosures and short sales, many consumers are looking to find a low cost, good deal purchase. At the same time, FHA continues to be a leader in the mortgage market. Knowing which is the right FHA loan product to pick, buyers can choose from a larger selection of homes.

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