203k Rehabilitation Loan
The landscape of the housing market all over the country has changed drastically over the last few years. Foreclosures and short sales have become the norm not the exception. Many of these distressed properties that have been entering the market are not in the best of shape.
Some of them need a major overhaul! They have however, created opportunities for buyers who are looking to invest the time and effort to fix them up either to turn around and resell them or to live in as a permanent residence.
As such, the 203K rehabilitation loan is a terrific mortgage vehicle for those buyers who would like to invest in repairs and improvements in a property. The Federal Housing Administration (FHA) which is a part of the Department of Housing and Urban Development (HUD) is the party in charge of administering various single family mortgage insurance programs.
The 203K is the primary program for the repair and rehabilitation for single family properties.
The 203K rehabilitation loan program is run through FHA approved lenders which submit applications from buyers to have the property appraised and have the buyers credit approved just like in a conventional loan process. The difference is that these lenders fund the mortgage loans and the Department of Housing and Urban Development insures them. HUD does not make direct loans to borrowers.
If you have not had the pleasure of your buyer’s financing with a 203(k) renovation loan then just wait, because soon enough you will. With all of the distressed sales and foreclosure properties abundant, it’s likely that soon you’ll run into that home that needs either a little TLC or some major renovations. Either way, the 203(k) loan is a great financing tool to help a buyer restore a home.
The 203(k) program was originally designed by FHA to help with neighborhood revitalization and is a fantastic loan opportunity to buy a home and put in a new kitchen, bathrooms, update electrical or plumbing… almost any major and minor improvement you want. And,there is really nothing else available that allows for the flexibility that this program offers. It’s a simple program opens the doors for the average home buyer to receive money to improve a home.
I love this loan for a few reasons: First, the down payment requirements are minimal (only 3.5% of the acquisition cost which is the purchase price plus the renovation costs). What bank do you know of that will give a construction loan to someone putting less than 10% to 20% down? None! And the second reason I love this program is credit. You know that credit score tightening has been big show stopper for many looking to buy a home, let alone buy and finance renovations.
A low FICO score can prevent a home purchase, especially a home purchase with less than 20% down as most mortgage insurance companies have minimum FICO score (some even have their minimum at 680!). Most lenders will usually allow a score of no less than 640 for the 203(k) but some may still allow a score as low as 620.
I also like the fact that with 203(k) you have two options – the Streamlined K as some call it, and the Full K. The real difference between the two are that Simple K allows only up to $35,000 for renovations and have a caveat that improvements cannot be structural in nature. The Full K allows for any permanent improvement and no limit as to the amount as long as the loan does not exceed the maximum loan amount for that county determined by FHA.
There are a few other differences in paperwork between the two types of 203(k) loans but the premise is the same… 203(k) helps move inventory! If you’re sitting on listings or have buyers looking for a fixer upper then the 203(k) is definitely the way to go!
-article from MassRealEstateNews.com