Pay for Home Improvements on a House Bought with Cash? 203k Please
Here's some good news for the current housing market: You can refinance a cash purchase into the FHA 203k to pay for repairs, renovations and home improvements. With so many bank-owned and foreclosed homes on the market today for low prices, cash is sometimes the way to go. With bids coming in quickly, paying outright for the house may be the best way to win a bidding war. But once you buy the house you realize it's missing the furnace, needs new windows, paint and flooring. Now what?
Did you know that HUD does allow a 203k refinance for a recent cash purchase? With the FHA 203k you can roll the cost of these repairs, renovations and improvements into one single mortgage. The refinance must happen within the first 6 months of the original purchase date. So if you're an owner/occupant borrower (on other words this will be your home, not an investment property) who recently bought the house for cash... and now you need money for repairs, upgrades and improvements...there's an option.
Here's an example* courtesy of National Renovation Lending Expert Joe Daly:
The cash sale price of the home might be $30,000 and you need another $36,946 for home improvements and renovations. Your total acquisition cost is now $66,946. With a 3.5% down payment for FHA you would need to finance $64,602 for the 203k mortgage.
| Down Payment |
$2,344 |
| Estimated closing costs |
$3,000 |
| Estimated pre-paids |
$2,656 |
| Total cash needed |
$8,000 |
Total cash from you the borrower is $8,000. This is credited from your current equity position which is the $30,000 you already paid for the house. This results in a possible cash-out offering of $22,000 or so.
Does this work for a Full 203k as well?
Good Question! Most cash sales will need the Full 203k treatment due to the extent of the repair budget (greater than $35,000 like the example above). If a home buyer pays cash for a home and all it needs is streamline eligible repairs, then it could certainly become a 203k Streamline.
Want to know more about the 203k option? Download "The FHA 203k Survival Guide" at the button below. This free guide covers all aspects of this renovation loan.
(cash photo: Flickr user Scott Waldron)
*All examples are meant as loose guidelines - no interest rates or APR figures are quoted. Talk to a mortgage consultant about actual numbers, fess and rates.