An FHA 203k mortgage is designed for those fixer-upper homes. The idea of buying a fixer-upper and customizing it into your perfect home can see perfect, however many buyers often underestimate the cost of renovations like this. This is what an FHA203k is designed for. Just like other FHA programs it is backed by the federal government which means that they are easier to qualify for than conventional loans.
Considering an FHA 203k Loan
If you are considering a house that needs repairs an FHA 203k loan could be for you. If you qualify an FHA 203k lender can offer you the money necessary for the house and money for the necessary renovations. The FHA 230k also includes up to 20% contingency reserve, this mean that you will have a bit of monetary cushion when working on your remodel in the instance of going over budget on the remodel. Also this loan has a provision that allows you up to six months of mortgage payments that allows your to live elsewhere while you are remodeling your home.
Under this loan there is a list of repairs that qualify, not all renovations are considered necessary for the home. The major repairs that qualify are:
- Structural repairs
- Room additions
- Decks, patios
- New siding
- Adding a second story
- Non-structural repairs
- New appliances
- Kitchen or Bathroom remodels
- Adding heating or AC systems
The program will not cover “luxury” improvement that are not necessary for the home, like adding a pool to the property.
You may be wondering how much money is available to you with a 203k loan for your renovations. This can vary based on what kind of loan you are shopping for (regular vs. streamline). With a regular FHA 203k loan might actually get you less money that if you were to do the streamlined process. This is due to the as-is value of the property plus the cost of repairments is where the rates are stemmed from. With the streamline option you can get rates from the purchase price of the home plus up to $35,000 on repairs. This will require 3.5% down but this can be from supports as well.
If you are looking to purchase a family home that has been completed for at least a year, has been torn down, then you might qualify for an FHA 203k loan. This loan can help you get into a home and start building your dream home with assistance.