The 203k: Your Best Home Improvement Loan Option
In today's housing market, equity has become a rarity. With falling home values it seems no one has equity anymore. In fact, an article from the Wall Street Journal says our average home values are at the same levels as they were in 1895 when you factor inflation into the formula. With equity so hard to come by, what are homeowners supposed to do when looking to finance home improvements? Have you ever heard of the 203k renovation loan from FHA?
The FHA 203k is a home improvement loan that's based on the after improved value of the home once the projects are completed. So instead of basing the loan amount on current equity (if any) of your home, you get to finance upgrades with money based on those very same improvements. Since the 203k is an actual mortgage, homeowners need to refinance and remodel - it's not just an unsecured loan or home equity loan. The good news is that this means the improvements are rolled right into the same interest rate as your home mortgage loan and amortized over the life of that mortgage.
What will the 203k cost me?
That's a great question. Keep in mind that the 203k pays for the home as well as the home improvements. So, whatever the home value is you will pay that monthly payment. But the 203k adds an additional $6 a month for every $1,000 in work you finance. A $20,000 kitchen remodel financed with the 203k will add about $120 a month to your mortgage payment. that kind of home improvement financing can turn the house you've outgrown into your dream home for less than it would take to sell the house and find a new one.
Now, if you're looking to build your own deck or add some cabinets to your kitchen on your own, then the 203k isn't for you. This home improvement loan is meant to finance a projects done by a professional. You'll need to hire a contractor. With few exceptions, the FHA 203k is not a DIY option. If that's the case, you're better off saving up and paying for the materials on your own or finding another financing option. This is where a home equity line of credit can help. But if your equity is as mythical as the Loch Ness Monster, then you may want to consider hiring a professional and financing with the FHA 203k vs DIY.
Learn more about the 203k and how you can spruce up your home this spring (with and without financing) with our free eBook "The Complete Guide to Spring Home Improvement Financing." Download your copy at the button below.
(home improvement books: Flickr user meddygarnet)