What is the power of the FHA 203(k) rehab Loan? It’s the ability to:
Turn a house into a dream home
Buy a home that’s in the right area but doesn’t quite fit your family – yet
Create an inviting den and entertainment area that draws your family together
Add extra bedrooms, allowing your kids to stay in the same neighborhood and schools
Replace your aging roof and furnace with low-cost financing
Invest in a home that needs some work and resell it
Rehab 2 to 4 units, convert 5 or 6 units to 4 units, live in one rent the others
Refinance and remodel you kitchen & bath, create a master suite
Add a room and bath for Grannie or when the kids move back (heaven forbid)
Loan is fully assumable to qualified borrowers with no money down
Up to six months mortgage payments can be included in the mortgage,
if the property is not occupied during construction
Renovation financing provides homeowners a cost-effective way to live in their dream home. And it gives homebuyers the opportunity to purchase properties in need of improvement.
This is accomplished with a permanent mortgage that allows you to purchase or refinance a home and then immediately begin the renovation – all with just one application and one closing.
The FHA 203(k) loan is a fully disbursed loan which allows a borrower to purchase or refinance a property and finance the cost of rehabilitation with one loan. Because it is fully disbursed at closing, the 203(k) loan can be insured by HUD as soon as the loan closes. The mortgage amount for these loans is based on the projected value of the property with the work completed, taking into account the cost of the renovation.
203(k) financing gives you:
More money to work with. The amount you can borrow is based on the expected increased value of your home, after improvements are made.
Less Strain on Your Budget. You can pay for your renovation gradually and affordably, over the loan term of your mortgage.
Less to Pay at Tax Time. Unlike other credit options, the interest you pay on funds used for a renovation is tax deductible.
Less Hassle. You’ll have one loan to apply for, one set of fees, one closing to attend, and one monthly payment to make.
Faster Completion. Renovation work can begin immediately after closing
Low Monthly Payments. Improvement costs are spread out over the term of your loan
Simplicity. One application, one closing, one monthly payment
HUD has taken a strong position to encourage this program and the loan is now easier to originate and close than ever before.
HUD’s Section 203(k) loan is one of many FHA programs that make mortgage credit available to borrowers when buying or refinancing a house that is need of repair or modernization. Unlike conventional rehab programs, the 203k has the same relaxed credit and income qualifying and low down payment guidelines as other FHA loan programs. This program works great for those who may not otherwise qualify for conventional loans due to income, credit and/or down payment limitations.
Similar to conventional renovation loans, the 203k offers a solution that helps borrowers by providing a single, long – term, fixed – or adjustable – rate loan that can cover both the acquisition and rehabilitation of a property. 203k loans save borrowers time and money.
FHA 203k Features
Higher level of supervision of homeowner than other programs
Loan amount based on Completed Value but capped at FHA maximum mortgage limits in your county. *adjusted annually
Very Low 3.5% minimum down payment
Relaxed Credit and Income qualifying guidelines
Some Limits on types of repairs
Investors (non-owner occupied) are prohibited
Fixed or Adjustable rates (ARM’s) available
Can finance up to six months of mortgage payments for owner-occupied properties to cover non-occupancy costs during construction.
For example, if you have to spend six months renting an apartment, while your home renovation takes place, you can include up to six months of mortgage payments, into your loan amount.
Advantages
MIP – Mortgage Insurance Premium, is required with the 203(k) Loan and is a monthly premium
Non-profit organizations are eligible with only 5% down payment and can buy multiple properties
Finance up to 6 months mortgage payments
Special HUD down payment programs
Most closing costs can be financed
The FHA loan is assumable
Down payment gifting is allowed