7 Improvements that Make a House an FHA 203k Candidate
I'm here to announce my candidacy for president in 2012. No wait...this is an article about FHA 203k candidates. Never mind.
One question we hear quite often is "What makes a house a 203k candidate?" To answer this question, let's first look at what the FHA 203k is, and how it works.
What is the FHA 203k mortgage option?
The U.S. Housing Department came up with a great option for backing mortgages in the late 1970's through the Federal Housing Administration (or FHA). It falls under the (k) section - which is why it's called the FHA 203(k). This section of the mortgage insurance program from HUD covers homes in need of repair, renovation or improvement. A borrower can borrow under the FHA 203k program for homes that need work done to pass an FHA inspection. They can also use this loan program to make a house they like into a home they love.
From the HUD website:
When a home buyer wants to purchase a house in need of repair or modernization, the home buyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods. The Section 203(k) program was designed to address this situation. The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property.
You can watch a series of short interviews and video clips with national renovation lending expert Joe Daly in the player below. Joe explains several uses and benefits to the FHA 203k.
>> Having trouble seeing the embedded video? Visit the AmeriFirst Home Mortgage channel on YouTube: FHA 203k Playlist
FHA 203k Candidates
Now that you know more about the FHA 203k, let's look at 7 home improvements that make a house an FHA 203k candidate:
- Water in the basement. A wet basement will lead to mold. Mold is one of several health and safety issues an FHA inspector would find and would create a problem for a buyer. The FHA 203k takes these issues and says, "The buyer will make these repairs, and the house will pass inspection." From waterproofing to outside grading and better gutters/downspouts, you can take care of water problems.
- Termite damaged sill plate. Another safety issue would be insect damage. Termites destroy sill plates. The 203k can help finance sill plate replacement (either that, or you can jack your own house up, rip out the bad wood, and put new wood down).
- Outdated kitchen. Old (or missing) appliances, peeling paint and old plumbing may turn you off from buying a house you'd otherwise love. If you can picture the shiny new kitchen, you can use the 203k to make it happen. Yes, even appliances can be rolled into the financing.
- Disability access. Whether it's a wheelchair ramp, wider doorways or an actual elevator, the FHA 203k covers disability access issues. So if you need wheelchair access for you or your family members, this is a great option.
- Not enough bedrooms. A family with 3 kids and 3 bedrooms (including the master bedroom) will face some space issues. But with the Standard 203k this family could find a 3-bedroom home in their price range and add-on another bedroom, rolling the cost of the work into the life of the mortgage.
- House with an inground pool. If you find a house with a pool, but you'd rather have a back yard your kids or pets can play in, you can cover the cost of filling it in with the 203k. In fact a California construction company made a short video showing how the FHA 203k fills in a pool.
- "I'd buy this house but..." - The But Loan™ mortgage program from AmeriFirst Home Mortgage takes a house where the buyer says this deal-killing sentence, and turns the situation into, "We can roll those repairs into the cost of the mortgage for a very reasonable rate. Would you like to make an offer?" The But Loan™ is a great tool for real estate agents, contractors and buyers alike. By turning the BUT problem into a solution, a home can go from a dog house to a dream house with just a little work.
You can click here to learn how much the 203k adds to your monthly mortgage payment. You can also download a free eBook at the button below to learn more about this great option. We put together the Top 10 FHA 203k Topics from our blog readers, so you can learn all about it with one easy resource!
(2012 Presidential Election photo: Flickr user DonkeyHotey)