Are you considering purchasing a fixer-upper, but don’t have sufficient funds to remodel it? Or maybe you have just the right amount of renovation money and have found the perfect house to buy, but your lending firm won’t permit you to snag it because the home isn’t considered liveable without toilets.
There will always be properties in the market that weren’t properly maintained by money-strapped former owners, were treated wrongly by previous renters, or maybe even intentionally trashed by former owners before their residential loss to a foreclosure. Shouldn’t there be some sort of way for someone like you to better these community eyesores and revitalize them back to life?
Thankfully, there is, and it’s brought to you by the government. The Federal Housing Administration’s rehab home loan product—the FHA 203k home loan—was intended for individuals who want to restructure or rehabilitate a blemished home so they can reside in it as their primary residence. These loans are authorized by the federal government to encourage lending companies to extend what would otherwise be a risky loan product. Because of the expense and danger involved, home rehab undertakings are typically handled by licensed real estate personnel who can purchase properties with cash and therefore will not need any traditional bank to approve the property’s situation.
Types of 203k Mortgage
There are two FHA 203K mortgage types: streamlined—which is also referred to as “Modified”—and regular. The latter is used for properties that demand structural repairs. Meanwhile Modified is used for homes that need only non-structural work. Both types can be used for refinancing or purchase.
For the regular 203K purchase home loan, the largest mortgage amount is taken off of the lesser of the as-is worth of the property plus rehab fees or 110% of the estimated value of the property once rehab is done. This means that a debtor will not want to buy a house worth $150,000 if it called for $25,000 worth of repairs; unless he or she had an extra $10,000 in cash, as the most one could borrow would be $1650,000. That said, the Streamlined loan permits homebuyers to add $35,000 at most to the purchase price to pay off improvements.
As in any given case, a borrower will have to have the income to augment the mortgage. No one can just take on a loan for any amount he or she wants solely because the house warrants it.
Though it can be more tedious to find a lending company that does FHA 203k loans and to finishes both the application and rehabilitation processes, the effort will ultimately pay off. This loan product can allow qualified borrowers to purchase their dream house and offer it the tender loving care it needs. It can also realize for one to take the leap from renting to actual homeownership, since there may be a fixer-upper available in their budget range when there aren’t any ready-to-occupy homes out there that are within their budget.
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