What Is An FHA 203k Loan?
Simple Answer - A great way to purchase and renovate a property in one simple process.
An FHA 203k Loan is a government insured mortgage program that allows borrowers to wrap the cost of property upgrades into a new 30 year fixed-rate home loan.
Since many homebuyers are finding that most of the foreclosures and short sale listings they are interested in purchasing require a minimal amount of repairs in order to bring them up to personal or bank standards, a 203k loan provides a perfect financing program for borrowers who have a limited budget for down payment + home improvement repairs.
The main benefit of a 203k loan is that the FHA program was specifically created help borrowers repair, remodel or renovate homes without having to come out of pocket with a bunch of money.
HUD's primary goal is to help potential buyers purchase a home they may not otherwise be able to afford, by providing mortgages with favorable loan terms, higher loan limits, and flexible down payment options. The 203k program is unique, because it facilitates homeownership for borrowers and houses that may not be able to qualify for a conventional loan program. The popular 203k can be used to purchase a home or refinance an existing mortgage, and at the same time cover the cost of a remodel or necessary upgrades and repairs.
Basically, a 203k loan is a regular FHA loan with an added component that allows for repairs, remodels and renovation. All 203k programs allow borrowers to finance the purchase price of the home along with the extra funds needed for repairs and closing costs. Once the home purchase transaction is closed, renovation funds are held in escrow and released through a draw process to pay for pre-determined renovation work completed by approved Baltimore contractors.
FHA's low down payment requirements help borrowers obtain an affordable loan that allows them to rehabilitate a neglected or distressed property. 203k loans are an important tool to increase home ownership, as well as a significant community resource for neighborhood revitalization.
Renovation Funds and Permanent Financing In A Single Loan
Most mortgage financing programs only provide permanent financing. That means lenders will not close a loan or release mortgage funds unless an appraisal demonstrates that the current condition and value of the home provides adequate security for the loan.
If a property requires repair or rehabilitation, the majority of lenders will stipulate that the improvements be completed before they will offer a long-term mortgage. This means banks are not able to fund a conventional home loan until repairs are complete, and repairs can't be made until the house has been purchased.
FHA's 203k renovation loan is distinctive in that it allows the borrower to purchase the home and provides additional funds to cover the costs of the proposed remodel or rehabilitation. Prior to the 203k inception, borrowers interested in a distressed property were forced to obtain separate loans to cover purchase, construction, and long-term financing.
The 203k loan programs have filled an important void by providing affordable financing for poorly-maintained properties such as short sales and foreclosures. Potential homeowners who may not have adequate funds for a conventional down payment plus the additional rehab costs this type of distressed property often requires will find a perfect fit with the 203k.
Did you know?
An FHA 203k loan can be used to purchase OR refinance a property. Also, you do not have to be a first time home buyer to use it. Contact us today to find out more about how this loan can help you to renovate the home of your dreams at 443-885-0060 or email to firstname.lastname@example.org.