FHA 203k Loan

Are you looking for some financial help to repair your bathrooms or paint your kitchen? Do you need money to replace the carpet or tile? Will some extra cash help you in replacing the water heater or stove? You can even purchase your dream house by taking advantage of FHA 203k loan. The FHA 203k will simplify the mortgage program and make financing less expensive and easier than any conventional home loan.

Basic Facts about FHA 203k

FHA or the Federal Housing Administration is a part of the HUD (Department of Housing and Urban Development), which manages different family mortgage and rehab loans. FHA or HUD directly does not issue any loan to the home buyers. The loan programs are operated through approved lenders. The lenders have the property appraised and get the buyer’s credit approved. The lenders issue loans to these buyers, which are insured by HUD, to minimize the risk of non repayment.

Types of 203k Loans

203k loan is generally of two main types- regular and streamlined. The former is issued for properties that need some structural repair, while the latter is for those that need only non-structural fixing. A streamline loan is also known as modified mortgage. You can avail a 203k loan either to refinance your existing property or to buy a new one.
If you are applying for a regular FHA loan, then the maximum mortgage amount you can get is 110% of the expected price of the property after rehab or lesser the value of the property in its present condition plus the rehabilitation costs. Say, if the present value of a house is $200,000 and it needs $300,000 in repairs, you would certainly not purchase the property unless you have at least $15,000 in liquid money. This is because; the maximum FHA loan limits you could get would be 110% of $200,000, which amounts to $220,000.
If you want to apply for a streamline loan, you can get an extra of $40,000 to the buying cost to pay for the improvements. In both the cases, you need to have the desired eligibility criteria for getting your loan application approved.

203k loan requirements

These FHA loans are offered only for individual home buyers and owners. Real estate investors cannot take advantage of this loan. As per the 203k loan requirements, the properties that are approved are as follows-
FHA approved condominiums Single family to four-family units Residential portion of a mixed (residential/commercial) property An existing house that would be moved to a new foundation on the mortgaged property and rehabilitated Existing construction that has been finished for at least 1 year and would be rehabilitated Tear downs with their existing foundation remaining

Role of Lenders

In partnership with the local and state housing agents, the lending institutions have successfully used the FHA 203k loan program to rehabilitate properties. Sometimes, these lenders also combine the FHA 203k with other Fed resources like HOPE, HUD’s HOME, Community Development Block Grants Program, and such others to assist the home buyers. This loan program has given the lenders an opportunity for demonstrating their commitment to the buyers belonging to lower income group. HUD tries to increase the homeownership opportunities for families that fall under the CRA (Community Reinvestment Act).

Allowable Repair and Rehab Expenses

Prior to applying for the loan, you should make certain whether your required house repairing or rehabilitation work meet the requirements as set by the FHA. The HUD also requires the properties to be financed meet some basic structural and energy efficiency standards. You can also check out hud.gov to find out the HUD’s minimum property standards and all local/state codes and ordinances.
The energy efficiency standards include insulation, ventilation, caulking and also using the right size of air conditioning and heating systems for the house. The house also needs to have smoke detectors near each sleeping area. With a 203k, you can avail finance for doing a wide variety of improvements and repair, some of which are as follows-

• Painting or installing new wall paper
• Addition of rooms
• Installing or repairing deck or patio
• Remodeling bathroom
• Drainage and grading of the site
• Remodeling kitchen including installing new appliances
• Structural repair or alterations
• Finishing basement or an attic
• Second storey additions
• New siding
• Increasing number of units in a house (say, from a single to unit to duplex)
• Plumbing
• Installing energy efficient appliances
• Flooring I
• nstalling HVAC (heating, ventilation, and air conditioning systems)
• Elimination of paint problem (generally lead-based)
• Disabled access
  
  However, the FHA does not provide any financial help under 203(k) for luxury items, like swimming pools, ice skating rink, theater room, barbecue pits, hot tubs, gold plating baseboards, and so on. However, there are some items which you might think as ‘luxury’, like a whirlpool bathtub, are actually allowed under this plan. So, you need to talk to the lender about your specific improvement plans and find out whether those are allowed in 203k.
  
  Finalizing the Rehab
  
  After you have finalized the buying procedure and the house is all yours, you can start on remodeling or repairing work. As per the FHA rules, you need to complete all repair works within six months of your purchase. The rehabilitation and repair money is put in an escrow account. Once the work is completed and the finished product is approved by HUD, the money gets released.
  Many lenders do not have proper knowledge how to tackle the lengthy and complex paperwork procedure involved with a FHA 203k loan. So, you need to select a lender who has prior experience in dealing with this type of loan. In comparison to other types of mortgages, the closing period in a 203k is longer. These usually take 60 to 90 days to close. You an also take advantage of free online FHA calculator and find out your repayment affordability. As the risk with this loan is more, the interest rates are also a bit higher. However, this extra effort or money spent will be paid off once you find your dream house and make it livable.