FHA 203k mortgages are popular due to the significant amounts of homes on the market that are in need of improvements caused by past foreclosures. This mortgage program allows homeowners to set money aside when buying a house. The FHA 203k mortgage program has many benefits that allow you to:
- Buy a property and have money set aside for renovations/repairs.
- Buy a home on one site and being able to move the house to another foundation and additionally, make renovations and/or repairs.
- Refinance another loan and have money set aside for renovations/repairs.
- Renovate or repair a property that you currently own.
With the FHA 203k mortgage program, there is no need for a short-term construction loan for financing your desired home improvements. The FHA 203k loan can either be a 30 year fixed rate, or an adjustable FHA loan that can cover both the cost of the property and the repair/renovation costs, as well.
FHA 203k Loan Tips:
There are many important aspects to consider when you are considering a loan. Here are a few tips about getting an FHA 203k loan:
- Choose the right property to renovate for your FHA 203k project. Having an expert FHA 203k realtor can help you find a property that you will get equity in and will make the difference when it comes to selecting the right property for you.
- Choose a realtor that is an expert with the FHA 203k program. The two most important aspects of getting the highest amount of equity are picking the right realtor and the right property. Having an experienced realtor, who is an expert on making foreclosure offers and negotiating with lenders is extremely important.
- Be aware that the FHA 203k Streamline (for cosmetic repair under $35,000) will close faster, cheaper, and at a better interest rate than that of the full 203k.
- Choose the right FHA 203k contractor. Your realtor will have a licensed, bonded, and insured contractor that will work on your FHA 203k project. If you use a contractor who does not have the right credentials, your FHA 203k loan will not close at all.
FHA 203k: Refinancing
Most people assume that refinancing is not possible a year or so after purchasing a home. However, that is not particularly true, especially with the 203K loan. The greatest benefit of obtaining the FHA 203k loan is the ability to increase the value of the home within the six month time period that the repairs/renovations are being completed. Imagine buying a house for $100,000 and having it be worth $200,000 when you are done! For successful borrowers, this instant equity means a dramatic change in their loan-to-value ratio–they may be eligible to refinance into a conventional loan in the future.
If the loan-to-value ratio and the poor status of the house are the things keeping you away from conventional financing, the 203K loan gives you the opportunity to grab it. The higher amount of equity you have in the home makes refinancing much more simple. The main reason most people want to refinance is to get rid of the mortgage insurance that is paid upfront and on a monthly basis. Though you won’t get any of the insurance, that you paid, back, you can eliminate the insurance from your future payments. You can then use this extra money to pay the loan down faster. This helps to eliminate the number of paying years for the renovations on your home.
Considering the FHA 203k Loan
If you are in the market to purchase a new home, consider the FHA 203k loan program. This FHA loan gives you the opportunity to finance your purchase while allowing you to work on your credit/income for future conventional financing. Overall, this loan will help you to get the home you wanted with the repairs and renovations that were necessary or desired, as well as, the financing to make all of that possible.