Purchasing a fixer-upper can seem like great idea, but once you come to the realization of the cost to repair the home, it may be financially impossible. It can also be hard to find a lender who will finance the home for you if the home is in need of a lot of expensive repairs. If you’re looking for a way to buy and renovate a fixer upper, an FHA 203k loan is the answer.
So, what, exactly, is an FHA 203k loan? A 203k loan is a home financing option that is available from the Federal Housing Administration that is offered to buyers who want to purchase a home that is in need of extensive repairs or updates.
Making Your Dream Home Perfect
For example, if you’ve found a great home with a ton of potential but that needs a updated kitchen, a new roof, and new siding, an FHA 203k loan might be a good option. In this scenario, an appraiser would estimate the added home value that would occur once the repairs and upgrades were made and add that additional value into the cost of your loan.
Most of the time the loan will have a contingency reserve so in the event your kitchen costs more than you planned, you can obtain the additional money as needed. In addition to additional funds, there is also a provision that gives you up to six months of monthly mortgage payments so you can reside temporarily elsewhere until the renovations are done.
The only caveat with an FHA 203k loan is that all repairs and upgrades must be performed by an approved, licensed contractor.
Types of FHA 203k Loans
What type of FHA 203k loan will you need? For a house that is in need of a structural repairs such as a new foundation or additions, you would need a regular 203k loan.
However, if the house needs non-structural upgrades such as updated flooring or new siding, then a streamlined FHA 203k loan is probably best for you. A streamlined FHA 203k loan covers various repairs and updates, from painting to new HVAC systems.
Neither loan will cover “luxury” renovations such as the addition of marble flooring or a swimming pool.
FHA 203k Loan Costs
Your cost for a 203k FHA loan will vary based on the cost of the home and the cost of repairs. In some cases, an estimated value of the home post-repairs/upgrades plus 10% is used as a guideline for loan amount.
Your loan officer will be able to tell you which FHA 203k loan funding option might be right for you. In either case, an appraiser can assess the value of your the house before and after repairs. Whatever the amount of the loan may be, you will have to put down a minimum of 3.5% of the total amount.
For More Information
Interested in getting more information on an FHA 203k loan? Call an NLC Loans Personal Mortgage Advisor today at 1-877-480-8050 and get pre-qualified. Your dream home awaits!