FHA 203-K Loan Program
Get You More for Less
- Homes that are in need of renovations will sale for a much lower cost compared to homes that are ready to move in.
- Home owners falling behind on mortgage payments will put little priority on maintaining the house. As a result, the bank is forced to discount the property in order to reimburse the future home owner for the poor condition of the home.
- Homes requiring renovations typically are listed on the market for a longer period of time and don’t receive many offers compared to move in ready home. The plus side to this is that the list price is more than likely to have been lowered numerous times from the original price
- The FHA 203k rehabilitation loans is ideal for homebuyers looking for their unique dream home within their price range but are unable to afford a brand new home outright.
- Quite often, home owners acquire a gain in equity after they buy their house and make renovations. Because of this, most FHA 203K loans initial mortgage amount are considerably less, compared to the after completed value.
Start Repairs Immediately!
- Problematic concerns to a property are often noted in the home inspection and appraisal report. Knowing these items of concern will be prepared is important as home buyers. Imperative items identified in the appraisal report as not conforming to FHA guidelines by lenders, are to be repaired before approving the loan. A challenge brought forth is that homes owned by banks do not have repairs made so easily. When a bank owns the home, they are resistant to making repairs prior to settlement with the home buyers, because there is no guaranty the buyers will follow through with the purchase.
- The FHA 203k rehab loan establishes a repair budget. There are two benefits to this, and the first one guarantees that repairs to the property are completed within six months of the buyer purchasing the home. Secondly, in doing so in a timely fashion, lenders are satisfied and FHA requirements regarding the safety condition of the subject property are met.
- The FHA 203k allows required repairs to bring the property not only up the minimum lender requirements, but also allows the new homeowners to give their own unique and modern touches in regards to design and livability
- An advantage for home buyers is that they don’t have to worry about taking time to save up the total amount of money needed to make repairs, or risk charging to a credit card with high interest. Instead, they can immediately start making repairs and then finance the repair costs into the life of the mortgage. Home buyers can make repairs to the property right away and finance the repairs over the life of the mortgage.
- Going hand in hand with making repairs, another advantage is that the FHA 203K loan allows you to borrow up to 110% of the after completed value. This gives you more money for repairs in contrast to obtaining a home equity line of credit after the home is purchased.
Purchase Offer Preference
- The Listing Agent for a house that needs work is aware of deficiencies that will be identified in the Appraisal Inspection Report, when an offer is made using VA, FHA, USDA or Conforming Financing.
- Lenders won't finance a property that list defects in the Appraisal Inspection Repor.t the Sellers have the choice to follow through with the required repairs to the property and hope the buyer ends up purchasing the home, or choose to wait for another buyer and hold off on repairs.
- Many times a seller will not make the repairs to a property. Because the home buyer didn't submit their offer based on a FHA 203k rehabilitation loan, the home buyer’s loan isn’t accepted and the purchase offer is terminated by the buyer.
- To prevent this problem, an offer submitted that takes into consideration that work is to be expected of the purchaser, is preferred or even required by the listing agent.
- As a result, offers using the FHA 203K program are given priority over offers with traditional financing even if the asking price may be lower.
- Since the FHA 203 K only requires a 3.5% down payment of the total purchase, including the renovation budget, this makes it the lowest down payment of all the rehab/renovation loans offered
- Gifts from family and friends, grants that assist in down payments and loans against 401 K accounts are all acceptable sources of money that could be used towards the 3.5% down payment.
- The seller has the option to pay 6% of the purchase price at closing. Home buyers using this option need less money at closing time, and can apply the 6% towards settlement fees, transfer/recordation taxes, or even escrow fees.
- The FHA 203k loan requires only a 640 credit score, tolerates a recent Chapter 7 bankruptcy two years or more from the filing date (one year if as a result of a job loss or medical emergency), Chapter 13 bankruptcy immediately upon discharge of the bankruptcy, and even foreclosure three years from the date of the property repossession