The 203k loan is an FHA loan that allows you to finance both the purchase of a home as well as the cost of fixing up the home. Looking for a fixer upper, but do not have the cash on hand to pay for the repairs? Looking to buy a home that does not qualify for a traditional FHA loan? The 203k loan may be just the thing for you!
Benefits
Buying a fixer upper can be a great way to get a home at a good price. Homes in need of repair often sell at a discount, as the sellers are often just trying to get rid of the home. The FHA 203k loan is a great way to purchase these homes as well as get the money to finance the repairs. The FHA loan can also be used to purchase a multi-unit building, up to 4 units. This is a great way to get started in buying rental properties, granted that you live in one of the units.
Guidelines
The cost of the repairs must be over $5000. Repairs between 5k and 35k qualify for the FHA streamline loan. Repairs over 35k can still qualify for the traditional FHA loan, which require the use of a 203k consultant.
There are many improvements that can be made with the 203k loan. These can include updates to kitchen and bathrooms, repairing and replacing plumbing and electrical, and even landscaping.
The borrower should find a contractor that is approved to do 203k loans. A detailed proposal of the repairs needed will be required for the loan application. The borrower is generally not allowed to make his own repairs.
The 203k loan requires that the borrower will be an owner occupant, meaning that the home must be the main resident of the owner. The rule is generally that the borrower must reside in the home for 1 year. As I mentioned before, you are allowed to a 4 unit building, so you can purchase a multi-unit building and get the money for repairs as long as you live in one of the units!
Conclusion
The 203k loan is harder to qualify for, and will take longer than the average loan. There is also more paperwork required, such as a detailed plan of the repairs needed. However, this loan gives home buyers a lot more options to choose from, and the chance to instantly add their own touch to their new home. Feel free to contact me with any questions!