203k Loans

The 203k loans are special types of mortgage products, insured by the federal government, that are aimed at helping the borrowers rehabilitate or repair a damaged home that will become their primary residence of the borrowers. Besides covering the purchase price of house, these provide money required for

repairs and related expenses as part of the loan. The important feature of this loan is that it has a low down payment option in comparison to other private-sector mortgages. This also puts the rehabilitation projects within the reach of the individuals who otherwise are not in a position to afford them. According to the followers of this type of loan, it helps improve communities and broadens home ownership options for the people. The critics however are of the opinion that these are risky loan products and are not offered without government underwriting.

Over the years, this scheme has certainly benefited innumerable borrowers to purchase their first home or renovate their existing home. The 203k streamline loans are available to all the borrowers, irrespective of their levels of income. The streamline program may be utilized for discretionary repairs that may not have been identified in the course of a pre-purchase inspection or approval.

203k Loan Qualifications

The loans were introduced to push up home ownership sales by curtailing down payment requirements on mortgage loans. The purchasers are required to pay an upfront insurance premium at the time of closing. They are also required to pay monthly insurance premium to guard the lender from loss in case of foreclosure and default. The maximum and the minimum amounts required to utilize these loans are $35000 and $5000 respectively. These are applicable for single family homes or multiple family homes of up to 4 units. In other words, these loans can be utilized to rehabilitate or repair single family detached properties, condominiums, town homes or small apartment facilities. This loan can also be used for the upgradation and modernization of the existing home.

This program can be utilized for accomplishing rehabilitation and/or improvement of an existing one-to-four unit dwelling in one of three ways:

1. By purchasing a house and the land on which the house is located and rehabilitate it.
2. By purchasing a house on another site, move it onto a new foundation on the mortgaged property and rehabilitate it.
3. To refinance existing indebtedness and rehabilitate a house.

203K Loan Advantages & Disadvantages

The 203k rehab loans are very popular loans that many individuals utilize to build houses. With this the borrowers get access to government-sponsored loan to get the fund they require. There are many facets of these programs and these are

associated with many advantages as well as disadvantages. The ad advantages and the disadvantages associated with these loans are depicted below.

Advantages Savings

These are indeed very helpful to stick to one’s savings and at the same time fixing up the damaged dwelling. The house repairing works are very costly. If one relies on his or her own saving to meet these expenses, he or she could run out of savings very quickly. In worse case, the individual may not be able to resell his or her house but at the same time his or her savings could be actually depleted. This program provides you the opportunity to borrow money from someone else and you can still repair your dwelling.

Low interest

The major feature associated with these programs is the low interest rate. Many rehab loans which are available at the commercial marketplace may be very costly. With 203k rehab loan, the borrowers would however get a fair interest rate.

Great deals

Generally the rehab loans have been designed for the ‘fixer-uppers.’ These programs are such that they may allow you to qualify for a home purchase. Many other programs available in the market may not allow the borrowers to qualify for a house purchase. By availing this program one can get a house at a price below the price at which you would be able to get it in the open market.

Disadvantages Long process

The closing process for this program is relatively longer than the average loans. The borrowers have to wait for nearly one and a half month to obtain the fund. In other words, if a borrower does not meet the criteria to qualify for the loan, it may mean that the borrower has wasted a lot of time.

Binding contracts

In case of a loan in excess of $35000, the borrower has to come up with a concrete plan to rehab the property. This may require you to hire a contractor who will do the necessary work for you and submit a bid to the bank. If you however hire a contractor, you have to stuck with the arrangements for the remainder of the rehab process irrespective of whether you like or dislike the contractor.

Listing agent confusion

One major problem associated with this scheme is that majority of the listing agents do not properly comprehend the process. In many cases, it results in to the offers not getting accepted. Obviously, if the offer is not accepted, the borrowers can not make any money. The listing agent confusion often renders the program becoming futile for the borrowers.

Competition

The competition for bank-owned properties and foreclosed is huge. Different investors generally have to make several bids to deal with the scheme. It can be said that competition often takes away part of the profit potential of the scheme.

203k Loan Calculator

It is not easy to comprehend the parameters associated with 203k loan calculation. It is difficult to understand even for the loan officers, experienced home buyers, realtors and educated home buyers.

The online calculator however effectively does this by determining few parameters which are listed below.

1. Final loan amount depending upon the purchase price and renovation proposal(s).
2. Renovation budget held in escrow account to be utilized to fund the property repairs, after the settlement.
3. The amount required for down payment.
4. The monthly mortgage payment, divided in to principal and interest and monthly mortgage insurance.