Do shows like Fixer Upper and Flip or Flop have you daydreaming of renovating a home? Did you know there are renovation loan options to do just that? A 203k loan allows homebuyers to finance both the purchase of a home and the cost of repairs into one single mortgage. Homeowners can also finance the rehabilitation of their current home. This loan can be used for a single-family home, or a multi-family, up to 4 units. Condos are also eligible but building and development must be FHA-approved, and only interior repairs are allowed. Sellers concessions are allowed up to 6%. By utilizing this loan, you can turn a fixer-upper into your dream home! The Federal Housing Authority (FHA) ensures these mortgages, which gives a buyer a great opportunity to obtain desirable upgrades (i.e. remodeling their kitchen), as long as the home meets the minimum property standards set by the Housing and Urban Development (HUD). Maybe the house you’re looking to purchase is in good condition but is just not your taste. With this loan you can make renovations and add your personal touch. There are some limitations on the type of repairs that can be performed. Additional information can be found at HUD 203k programs.
These loans also provide buyers with the opportunity to buy a home in a neighborhood they might not otherwise be able to afford. The minimum needed credit score is also typically lower for 203k loans versus a conventional loan. You can borrow up to 110% of the property’s proposed value. Make sure you are meeting with an experienced lender who can outline all your options. A 203k mortgage also may offer lower interest rates and a down payment of only 3.5%. By making improvements to the home you are increasing its value, therefore building equity. HUD also requires that all repairs are done within six months of closing, so you’ll have a remodeled home customized for you. 203k loans do require more paperwork than a conventional loan, so having a lender experienced with these types of loans can make the process much smoother. The same thing goes for finding a contractor, as well as a 203k consultant. The more experienced your team is the more seamless your home buying process will be, you can find recommendations on the HUD venders list.
The 2 Types of 203k Loans:
If you’re interested in a 203k loan, you’ll want to determine which option will work best for you, depending on the extent of the repairs. A Limited 203k (formerly known as a streamline) will allow you to repair minor work, such as kitchens and bathrooms. Another great option is redoing flooring whether you want to restore the current hardwood floors or replace the wall to wall carpeting with new hardwood. For this option the total cost of repairs must be under $35,000. The repairs cannot include any structural or luxury items, such as new swimming pools, spas or saunas. This version of the loan does not require a 203k consultant for the process, though it is recommended. The disbursement of the funds will be 50% up front and the other 50% after completion in six months. In some cases, you may be able to do some of the repairs yourself.
The FHA Standard 203k can finance major renovations, including structural changes, and additions. You may move the home to a new lot or retrofit the home to be handicap accessible. Have you always dreamt about having a front porch but the house you’re buying doesn’t have one? You can add one with your 203k loan! A 203k consultant is required for this option because the funds are disbursed over the course of the six months as ‘draw requests’ when repairs are completed. There is a minimum $5,000 of repairs required but there is no maximum. Although you need to make sure the home will appraise out including the renovations. This option provides vast opportunities to update and customize your new home. So, stop passing on those homes that need some updating! Take a look at the images below for some inspiration.
These renovation loan options offer benefits for a range of buyers/sellers in the purchase process. The seller can sell a home that is need of repairs/upgrades which will increase the value of the home as well as the neighborhood. The realtors can create an option that benefits their clients and allows them to buy a home they may not otherwise have been able to afford or were interested in purchasing. Get your Pinterest boards ready and get renovating!