FHA 203k loans are loans that are designed and offered through the Federal Housing Administration – a government agency. These loans were designed to encourage lenders to offer funding on home purchases that may be considered high-risk, as part of the neighborhood revitalization initiative. These loans are designated for homes that are significantly damaged and in need of rehabilitation. The loan is configured to cover the cost of the property and any subsequent repairs.
There are a number of qualification criteria, many of which are associated with the property itself
The Down Payment
As far as the homebuyer is concerned, the eligibility requirements are not as stringent as most traditional loans due to the government sponsorship. The down payment requirements are normally minimal. You will be able to determine a down payment range by contacting a lender that specializes in 203k loans such as Prospect Mortgage to discuss the details associated with acquiring a 203k loan.
Which Houses Qualify?
The qualification criteria for these loans is more centered on the property than the purchaser. The goal is to revitalize deteriorating communities. These loans are intended to entice buyers to buy homes that are in need of major improvements. The goal is to improve the aesthetic and financial value of communities that are currently in a deteriorated state. In order for a property to qualify for a 203k loan there are several criteria that have to be met.
– The purchaser must have plans to live in the home they are purchasing – in investors.
– Tear-downs are allowed as long as a portion of the foundation remains. Homes that must completely be destroyed and rebuilt are also eligible.
– Homes that have been under construction for more than a year also qualify.
– Multiple family dwellings up to four families are allowed
– If a condo has been approved for an FHA loan, it qualifies as long as it meets the other criteria.
– A mixed-use property can qualify as long as the residential portion is the only part that is being repaired.
– Homes that have to be moved to a new location will qualify.
Repairs that Qualify
Not all repairs will qualify under the provisions of a 203k loan. The FHA has created specific guidelines that determine the types of repairs that will be allowed with a 203k loan. The lender also has the right to stipulate which repairs will be allowed.
Qualified Repairs Include:
– Ventilation, air conditioning and heating repairs
– Plumbing
– Flooring and roofing
– Disability Access
– Kitchen remodeling
– The purchase of new appliances
– Improvements that enhance energy conservation
– Second-story additions or room additions
– Finishing an existing attic or basement
– Replacing or adding new siding
– Finishing an existing attic or basement
Special Considerations
The first thing to consider is the fact that a 203k loan is meant for those who are willing to take on a home that needs considerable work. Taking on a project like this has the potential to be very rewarding, but it does require patience and work.
Because of the risks involved, many lenders do not offer 203k loans, meaning that people seeking these type of loans have to find a lender that offers them. It is best to work with a lender that has considerable experience in the area. The document preparation for these type of loans can be extensive, so the borrower will need to be prepared to spend a considerable amount of time preparing the documents.
Working with an experienced lender will help ease the process and ensure that all of the bases are covered.