When you think of a 203K loan, you probably think of seriously distressed properties. Maybe you even think they are only good on foreclosed properties or short sales. In reality, there are many types of homes you can use this loan program on – even the home you live in now. Although it is a good choice for borrowers purchasing distressed properties.
Let’s take a look at how you can take advantage of this loan program.
The Basic Eligible Properties
Taking a bird’s eye view of the 203K loan, you could use it on the following properties:
- Single family homes
- Town homes
- 2-4 unit properties
The main difference is the homes don’t have to meet the FHA minimum property guidelines. In other words, the homes might be considered unsafe or unsanitary and you can still use the program to finance them.
So what’s the difference? It’s the impending work that makes the difference for you.
The Lender Must Approve the Home Improvements
Let’s say you want to buy a single family home that doesn’t have working appliances and has holes in the walls. Typically, the FHA loan would be a no-go. It’s not safe or livable. But, if you use the 203K program, you get the same flexible benefits, along with the money to fix up the home.
The difference is that the lender must approve the improvements. You can’t just say you are going to add working appliances or fix the walls – you have to prove it. If you use a full 203K, the lender will assign a loan consultant to your case. This person will be with you every step of the way from start to finish. He will look at what needs to be done to make the home livable. He will also make sure the right contractor gets hired and the work gets done as promised.
In other words, no money will exchange hands unless the loan consultant approves the work.
Buying a Foreclosed Property with the 203K Loan
However, you can buy a foreclosed property with this loan program. Again, the loan consultant will need to assess the situation. He will need to determine the work that needs to be done to make the home livable. He will then work alongside the appraiser to determine if the cost of the repairs will be reflected in the home’s value. If everything falls into place and the money you must borrow is less than 110% of the home’s improved value, you may be able to use this loan to buy a foreclosed property.
Fixing up Your Current Home
Did you know that you could use the 203K program as your refinance program? Let’s say you want to add a room to your home or you want to do some simple remodeling on the bathroom, you can take the money out with the FHA loan program.
If the improvements are less than $15,000, you can use the streamlined version. You won’t need a loan consultant, but you will have to meet the value requirements. The appraiser will need to make sure that the changes you will make will improve the home’s value enough that you borrow no more than 110% of the improved value.
The FHA 203K loan is available for almost any type of home that you could use the standard FHA loan on. The difference is that the appraiser has the final say depending on how the improvements will affect the home’s value. Talking with a knowledgeable FHA lender will help you determine if the loan will work for what you intended.