What Is A 203K Mortgage Loan
What Is An FHA Loan?
It is a type of federally insured mortgage that is suitable for people who want to repair a house and live in it as well. The FHA 203(k) loan provides money that is needed to cover the purchase price of the house and the amount that is needed for all the repair work. The loan is a little different from private loan mortgages due to its low down payment, which is why it is suitable for people who can’t afford other types of loans. The loan is authorized by the Federal Housing Administration and is perfect for people who need loans to sort out their financial issues.
How to Qualify For the Loan
The 203k loan helps people cover the cost of their renovation and merges it with the mortgage, so that it has one closing and one loan. If you are wondering about the amount that you can borrow, you should know that it depends on the price of your home, price of your repairs, labor cost, and how much the materials will cost.
The down payment generally mounts to 3.5% as that is the minimum, which is required by the FHA loan program and depends on the loan amount and the repair costs. If you want to qualify for the loan, you should know that it is important to have a credit score of 640 or more and also a DTI (debt to income ratio) of around 43%. The loan amount should be less than the set maximum limit for the FHA loans. If you want to apply for the loan, you will have to provide complete documentation of the income and the assets as well as the total cost estimate.
Learning How the 203k Loan Works
If you are interested in the loan, you should know that there are two types of loans:
The Streamlined 203k Program
This is suitable for homes that can finish their repair work for under $35,000 and don’t have any structural deformities.
The Structural Repair Program
The minimum requirement for this loan is $5,000 and it is suitable for people who need to get structural repair work done.
The repair work for both the programs should start within one month and should be completed within six months. If you want to learn about the type of projects that the program will fund, you should read the guidelines.
Important Things to Know
Here are some of the things that you should know:
- It is a requirement of the loan to pay the insurance of the mortgage for at least eleven years, which may increase the amount of the monthly payments.
- The interest rate on the 203k loan is generally higher than other FHA loans and you are to pay 1.5% of the total loan amount.
- The process takes a long time because there is more paperwork involved.
- In order to learn about the home improvement project than have a look at the houses in your area because if you upgrade it too much, it will be hard for you to recover your investment and sell it off.
- Work with a lender who has prior experience because that will help you out with the paper work.
Learning about the Eligible Properties
The following properties are eligible for the FHA 203(k) loans:
- Condos that are approved by FHA
- Existing construction that has been completed for at least a year
- Getting a new foundation for the existing house
- Getting tear downs but only if the existing foundation remains intact
- If you want to rehab the residential part of your mixed-used property
- Single-family to four-family dwellings
Financing Conditions and Repair Expenses
The following things can be easily financed with the 203 k loan:
- Adding or decreasing the number of units
- Bathroom remodeling
- Disabled access
- Elimination of lead-based paint problems
- Energy conservation
- Finishing an attic or basement
- Heating, ventilation and air conditioning systems (HVAC
- Kitchen remodeling, including appliances
- New siding
- Room additions
- Second story addition
- Site grading and drainage
- Structural alterations and repairs
If you are considering a 203K Mortgage loan for your home, make sure you keep all the aforementioned details in mind in order to make a feasible decision.