Although not widely advertised, a federally supported program called FHA 203 (k) may well be your ticket to this home improvement project. It’s also a way to help streamline the process so you do not spend more time talking to lenders than to architects and contractors.
The main disadvantage of this program is that you have to secure the FHA 203 (k) while you are negotiating your first mortgage purchase from home. Be warned that the FHA 203 (k) rehab home loans are not for everyone, even for those who qualify. One of the reasons is his inevitable bureaucracy. In fact, HUD recognizes this and has put in place a certification program of independent consultants (203) that can smooth the process for you.
FHA Rehab Loan is the second name for an FHA 203k Mortgage loans insurance.
This program is administered by the US Department of Housing and Urban Development (HUD).
You can get up to $ 35,000 in improvements (the minimum amount you can get is $ 5,000).
You must take this loan when you buy the house.
Administrative paperwork comes into play with this loan, but consultants can help you.
You can not take the loan for anything. You can only use it for eligible home renovation projects, which generally include safety, plumbing, retrofit, expansion, etc.
What is an FHA 203 (k) Rehab Home Loan?
Secure financing when you find that the diamond house is a real problem. In your mind, you only know that it will be the most beautiful of streets, but lenders may not share this vision. Even if you are able to get financing to buy the house, you still have to face the arduous task of getting second funding for rehabilitation.
An FHA 203 (k) loans is a mortgage loan combined with a conversion loan, issued by mortgage lenders and insured by HUD. You can get a loan up to $ 35,000 to improve your home, but only for a limited number of renovation projects.
Why is the government so generous? It is not so much generosity as the global vision and the American economy. Through HUD and FHA 203 (k), the government is more concerned with revitalizing or maintaining entire communities and ensuring that the existing stock of homes in the country is not imploded. Nevertheless, you can personally benefit from these very diverse grounds.
Help solve the problem of the equity gap
The advantage of the FHA 203 (k) program is that it fills the gap in equity needed by recently purchased homeowners.
Buying a home that needs help and at the same time getting financing is a paradox. You must first build an asset in the house before you can take out a new loan. Equity is usually the repayment of the principal of the loan while the house gains in value. That takes time.
A less desirable alternative is to obtain an unsecured loan or a specific loan for this renovation work. Even if you can get an unsecured loan, the interest rates will be much higher than if you got a loan that uses your home as collateral.
Without FHA 203 (k), homeowners will first find a home that requires thoughtful care. Then they ask for a first mortgage loan that only covers the purchase price of the house. While this sounds ideal, borrowers can not ask for an additional $ 35,000 to be added to this first mortgage. First mortgages only cover the purchase price and nothing more. After the purchase of the home and after owning the home for a period of time, the landlord applied for a second mortgage, net loan or HELOC line of credit to pay for the renovations.
HUD / FHA bridges this gap between the current net worth of the house and the loan amount by securing the loan. Essentially, it’s like the rich uncle coming in and saying, “I’m going to support this loan until the house can be improved.”
You get an initial mortgage to cover the purchase and redevelopment of your future home. This secures you from borrowing two different loans.
This loan is a good boost to help you improve your home. Because the program expects you to use the money for rehabilitation, you must start within a reasonable time. This avoids procrastinating for years.
Unlike some loans with short repayment terms, FHA 203 (k) loans are for the duration of your mortgage. For example, if you have a traditional 30-year mortgage, you also have 30 years to repay the remodeled portion of the loan.
Due to program requirements, your loan closure period will generally be longer than with a conventional loan. Closing periods range from sixty to ninety days.
Your choice of lenders is limited. Instead, you need to stand out from the list of lenders approved by the FHA 203 (k) HUD.
A significant amount of paperwork is involved. To approve for the FHA loan, you will need to send a detailed application, including architectural sketches.
List of approved renovations To Apply
The authorized remodeling’s seem preventive at first. But keep in mind that these definitions can be stretched and still remain legitimate remodels. In general, the HUD fears that 203 (k) silver will not be used for “luxury items and upgrades” as they call it.
However, they also emphasize that “painting, additions of rooms, terraces and other objects, even if the house does not need further improvements”, will fall within the scope of 203 (k).
- Renovation for the handicapped person
- Modernize an obsolete house
- Improve the energy efficiency of your home
- Landscaping and other outdoor work
- Installation or replacement of the roof, gutters, and downspout.
- Modify the structure of the house and/or rebuild the house
- Eliminate safety hazards
- Aesthetic improvements
- Plumbing Improvements, Including Well Work and Septic Tanks
- Additions/replacements of soils (includes soil treatments)
FHA 203 (k) is it a miracle loan?
At first glance, the FHA 203 (k) Rehab Home Loans (often mistakenly called $ 201,000 loan) may seem like a miracle. After all, you get money to buy the house and extra money to remodel it, and you get it right away. However, it is important to remember that:
- It’s always a loan, not a subsidy. It must be repaid even if you have the entire term of the loan to repay it.
- Because it’s a loan, interest is charged. You will want to look at the payment schedule to see how much interest this loan will cost you for the entire life of the loan.
- Due to the longer closing period, the FHA 203 (k) may not help you in a highly competitive market where you have to buy quickly and without complications.