Real Estate Weekly- What is a 203K Rehab Mortgage Loan?
You find this great house that is in the perfect location, it's in a great school district, excellent floor plan and the yard you always wanted. It's the lowest price in the neighborhood. So what's not to like? It's a foreclosure. And, the last occupant ripped up the carpet, punched holes in the walls, broke windows, they even took a toilet with them! Can you imagine fixing all of that? Most first-time home buyers turn around and walk out the door because they believe they couldn't possibly come up with the money to fix all of this.
Most mortgage loan programs require homes "in need of work" to be complete before the financing can be secured for the purchase transaction. Whether the property needs a little or a lot of work, most first-time home buyers simply don't have the up-front cash to invest in a property prior to actually securing the financing.
However, the FHA 203(k) Rehab Loan may be your answer to turning that "fixer-upper" into your dream home. The Federal Housing Administration (FHA), which is part of the Department of Housing and Urban Development (HUD), offers this loan program to provide for the rehabilitation and repair of single family properties. One single loan is used to pay for the purchase (or refinance) and the cost of rehabilitation or updating of the home. This loan is only available for homebuyers purchasing a primary residence that they will occupy. Unfortunately, it is not a program for investors to purchase a home fix it up and then sell.
Another great thing about this loan program is that it is originated and underwritten just like a standard FHA loan program. You can purchase the home with the same 3.5 percent down payment of a regular FHA loan and the seller can still assist with your closing costs.
There are two types of FHA 203(k) Loans: The Streamline 203(k) is used when you want to make minor cosmetic changes to a house. It also eliminates most of the paperwork required of a full 203(k) and simplifies the process to obtain rehab funds. There is a minimum of $5,000 and a maximum of $35,000 to be financed in the mortgage amount for improvements. A Standard FHA 203(k) loan allows you to make substantial structural improvements, repairs, remodeling and updating to a house or even build a new one. These are both great loans to use to find that "almost perfect" home and make it your dream home.
Deanna Parrish is a Licensed Mortgage Banker with First Priority Financial. For questions or comments you may call 468-8500 or email.