Buying a Fixer Upper? There’s a Loan for That
FHA has a home improvement loan called a 203K loan that is meant to help home buyers renovate the house they are buying all in one mortgage. This is great for buyers who are considering a property that will need some work but they don’t have the cash on hand for the updates.
This loan can also be used by current home owners that want to make improvements to their home. The loan amount is based upon what the property will be worth, AFTER it is improved.
The renovations cannot be done DIY, you have to hire an approved, licensed and insured contractor to perform the work.
What can you do with with this program?
- Update the kitchen and baths and appliances
- Install new flooring, tile and carpet
- Fix or replace Plumbing, heating, AC and electrical work
- Perform well and/or septic repairs
- Fix or replace roofing, gutters and down spouts
- Install energy conservation improvements
- Perform landscaping and site improvement
- Make accommodations/updates for disabled access
How does this process work if you are buying a home?
Well, before you make an offer on a property you will need to bring your lender approved contractor(s) to the property so that they can provide a detailed estimate of the work you would like done. The renovations cannot be DIY. Then speak with your lender and have them help you structure your offer to the seller. Once your offer is accepted, the closing process will move forward. After settlement, you have six months to have the work completed. Your lender will walk you through the entire construction process.
Who is eligible for a 203K Loan?
You can qualify if you are the owner occupant and you are purchasing or refinancing. Investors cannot use this program. You can use this loan on single family dwellings, limited condo and townhouses and 2-4 unit buildings. Note that unfinished new construction properties are not eligible.
What type of loan is a 203K?
It is a fixed rate loan and is available with 15 or 30 year terms. These loan rates are generally about 0.5% higher than a conventional loan rate. You will also need to be able to put down approximately 3.5% down, based on the total cost of the acquisition and the renovation.
What are the Loan Limits?
- $625,500- 1 unit
- $800,775 – 2 units
- $967,950 – 3 units
- $1,202,925 – 4 units
Talk with your lender about your options with this loan program. It may open up opportunities that you didn’t know you had!