Buy a House and Fix It Up with FHA 203k
I have a friend who's looking for a house for her 21 year old daughter. I remember being 21 and looking for an apartment - or a house with friends to rent. But in today's housing market with homes selling for $30,000 there's a lot of potential for first time home buyers. Of course many of these homes need work, and many buyers are not handy. This is where the FHA 203k comes into play. You can buy a house and have the remodeling done by professionals, rolling all of the cost directly into the one mortgage.
Let's look at some details...
The purchase of a house that needs repair is often a catch-22 situation, because the bank won't lend the money to buy the house until the repairs are complete, and the repairs can't be done until the house has been purchased.
The FHA 203k program can help you buy or refinance a property and allow you to roll-in the costs of repairs and improvements up to 110% of the after improved value of the home with a minimum 3.5% down payment.
Here's a short video with national renovation lending expert Joe Daly explaining the FHA 203k in under 2 minutes.
Video link: What is the FHA 203k in Under 2 Minutes?
The Federal Housing Administration (FHA), which is part of the Department of Housing and Urban Development (HUD), administers various single family mortgage insurance programs. The Section 203(k) program is HUD’s primary program for the rehabilitation and repair of single family properties. As such, it is an important tool for community and neighborhood revitalization and for expanding homeownership opportunities.
FHA 203k ‐ How Is It Different?
Most mortgage financing plans provide only permanent financing. That is, the lender will not usually close the loan unless the condition and value of the property provide adequate loan security. When rehabilitation is involved, this means that a lender typically requires the improvements to be finished before a long‐term mortgage is made.
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 FHA 203k 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. To provide funds for the rehabilitation, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work.
To be eligible, the property must be a one‐ to four‐family dwelling that has been completed for at least one year. In addition to typical home rehabilitation projects, this program can be used to convert a one‐family dwelling to a two‐, three‐, or four‐family dwelling. An existing multi‐unit dwelling could be decreased to a one‐ to four‐family unit.
How the Program Can Be Used
This program can be used to accomplish rehabilitation and/or improvement of an existing one‐to‐four unit dwelling in one of three ways:
- To purchase a home and rehabilitate it
- To purchase a dwelling on another site, move it onto a new foundation and rehabilitate it
- To refinance an existing mortgage and rehabilitate the home
This is just one option for buying your home. Want to know what other options are available for today's home buyer? Download "The Only Mortgage Loan Options Guide You Need" at the button below. The free eBook is about a dozen pages long and covers most of the loan programs you'll be looking at to buy your home.
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