FHA 203(k) Renovation
If you are hunting to purchase a residential place which would need certain amount of renovation, then the FHA 203(k) program would be the best option for you. This is different than the standard mortgage loans. It is known as Federal Housing Administration’s 203k Rehabilitation Mortgage Insurance Program. This program covers renovation as well as purchase or renovation and the cost of refinance all into one mortgage itself.
Mostly the buyers who are in search of new house, tend to ignore those homes which would need certain renovation. This is due to the fact that they find it difficult to shell out extra money for an additional repairing work such as fixing the tile, renovating the kitchen or working on the flooring etc. A mortgage loan which would combine all of these expenses thus allowing you to extend the payment for the renovation work as well over the life instead of just going in for paying the lump sum amount.
The FHA 203k program can help in various sections such as refinance the existing mortgage as well as add the cash which is very much required for the renovation of the house project all into the loan balance. This option gives the individual to decide whether they would want to remodel or move.
Below are the eligibility requirements of FHA 203 (k) –
For an individual to qualify for a 203k loan, there are certain criteria’s which needs to be fulfilled. These are similar to the other FHA loan options:
- The Minimum credit score should be 620 or 640. It would depend on the lender.
- The debt to income ratio should be a maximum of 41 percent to 45 percent.
- One would require a down payment of 3.5 percent or more (would include the purchase price as well as the repair amount). However, if it is an HUD owner home then it can be as minimum as 100 dollars below.
- The minimum repair escrow amount would be 5000 dollars. However, if the cost goes above 35000 dollars then one should go in for the full 203k loan.
- If one is intending to renovate then they must be an owner-occupant of the said property.
- The loan amount which would include the renovation costs as well as the purchase price should be lower than the maximum loan limit available in the area.
- The eligible properties which would be approved for this plan are owner occupant property which would be at least a year old, two to four of the unit properties, townhomes or PUDs, it can be either attached or detached single family residences, modular residences.
- The ineligible properties which would not be approved for this plan are those sites which are less than a year old, condotels, manufactured homes, co-ops and log cabin residences.
- The maximum loan to value in case of purchase would be 96.50 percent whereas in case of term refinance the maximum loan to value would be 97.75 percent.
Regardless of how much home equity one has or the size of the down payment, the FHA borrowers would need to pay an upfront mortgage insurance. For those borrowers who would make a down payment of less than 20 percent or have a loan to value which is more than 78 percent or more there would be a requirement for annual mortgage insurance. If the borrowers default the FHA mortgage insurance would cover the losses to be borne by the lender. Also the 203k borrowers would need to pay an additional fees which would include a supplement fee either of 350 dollars or 1.5 percent of the repair cost. One of the biggest difference when it comes to qualifying for an FHA 203k mortgage program instead of the traditional FHA mortgage is that the individual must qualify based on the costs of the renovation which is in addition to the purchase price.
Once if the individual has decided to go for the combo loan option which is for purchase as well as renovation then they would need to work out on the contractors who can best carry out the renovation work. It is always a better option to work with a lender who has an experience with such types of loan program as well as those contractors who have prior experience of working with those individuals who had taken the FHA 203k plan. The reason for doing so is because these individuals are able to easily handle the additional paperwork so as to meet the requirements of the FHA and also to accept the payment schedule which is driven mainly by the FHA.
Many a times, those lenders who have worked on the FHA 203(k) program would recommend certain good contractors to you. Also there are certain stores who have experts working on such loan program. An individual would need a minimum of one bid and in certain cases it can be three for the repair work from a licensed professional. You as a homemaker would make the decision or the choice of who would carry out the work but the lender would need to see the bids so as to ensure that the amount you are charges is reasonable enough. When the job work is completed, most of the lenders would need to see the inspection and the title policy update so as to ensure that all the contractors have been paid their dues and there are no liens been placed on the property.
Going in for an FHA 203(k) mortgage loan would seem like a complicated task but if the individuals cash reserves are low or if there are not much home equity then it can turn out to be a good option to go in for. The only thing one would need to take care of is to check out for lender with a lot of experience in hand with regards to the FHA 203 (k) plans so as to avoid any kind of complications associated with the loan plan.