American Property Financial Blog

          If you have ever watched the show, Property Brothers, on HGTV, you see that they help homebuyers find and buy a home that needs major renovations but has the potential to become their custom dream home all for a lower price. This can be appealing to first time home buyers as many of them, like on the show, cannot afford their dream home buying a house "new". What they don't explain on Property Brothers, is how can these people qualify for a loan that covers both the cost of the fixer-upper home plus the cost of renovations all in one? The answer: FHA 203k loan.

 

 

 

 

 

 

 

 

 

 

 

 

 

One major question is: How do you distinguish the characteristics of an FHA 203k applicable home?

- The first and foremost is that this loan is intended for the borrowers to be the primary occupants, not as an investment purchase.

- 1-4 family home that has been completed for at least a year.

- A torn down home, but only if part of the existing construction will remain.

- For more details about qualifications, we recommend visiting HUD.gov

 

The FHA 203k loan is a government endorsed loan in an effort of reassuring lenders of offering what would be a risky loan product. Typically in this type of loan, up to a 20% contingency reserve is set aside for expenses and repairs that are unexpected and could higher the costs. While in the process you can have 6 months of mortgage payments be included in the loan amount, which would be paid as you're renovating, and saves the borrowers from having 2 monthly house payments.

 

One example of what this type of loan covers could be the following scenario: You find a house where the entire kitchen is gone. In your loan, the amount of money needed to buy flooring, cabinets, and everything up to the appliances would be factored in.  If you are someone who is then wondering would I have to hire a contractor to complete renovations if I feel I am apt to do the renovating myself?  There is an answer: According to FHA guidelines, " if the borrower wants to do any work or be the general contractor, they must be qualified to do the work and do it in a timely and workmanlike manner” and “a borrower doing their own work can only be paid for the cost of the materials. Monies saved can be allocated to cost overruns or additional improvements.”

 

This is a more detailed list of the type of work for FHA 203k:

• Roof repair, gutters, downspouts

• Existing HVAC Systems

• Plumbing and Electrical System

• Flooring

• Painting

• Appliances

• Weatherization

• Repair, replace or add exterior decks, patios, porches

• Basement waterproofing

• Window and door replacement and exterior siding

• Septic and/or well repair or replacement

• Improvements for accessibility

• Lead based paint stabilization or abatement of lead based paint hazards

 

There are 2 directions you can go when considering an FHA 203k loan. The first being the regular route: With this you can qualify for a loan that covers the "as is" value of the home plus repair costs, or 110% of the predicted value post-renovations. For those who decide to go streamlined, you get the loan amount for the price you bought the home plus up to $35,000 to go towards the renovations.  With either direction, you may decide to go, do keep in mind the time and amount of work effort that goes into renovating a home.

 

What is also unique to FHA 203k loans are the cons associated as well as the higher risk. The average time period until closing for FHA loans is 30-45 days, however, for 203(k) loans expect a 60-90 day time period. If you are eager to get moved into a new house, this wouldn't be the direction to look. Because this loan is riskier due to renovations, the interest rates are potentially higher.

 

To start the application process, fill out our Pre-Approval form (Spanish Pre-Approval form). For more information about FHA 203k loans, please visit our FHA 203k page on our website, give us a call or email, and we'd be happy to speak with you.