FHA 203(k) Rehabilitation Loan
The 203(k) is the FHA solution for damaged property. A standard FHA loan (or conventional financing for that matter) generally requires that the property you are purchasing or refinancing be in turnkey condition. In other words, the property must be move in ready and not have any of the damage or deferred maintenance typical of foreclosed properties.
Problem: You’ve found the perfect house, perfect neighborhood at perfect price: but the previous owners have made off with the copper plumbing. Solution: a 203(k) loan will lend you money to purchase and finance the repairs.
Due to the advanced nature of these loans we do not recommend that they be attempted by first-time homebuyers or those with little cash reserves.
Potential issues with a 203(k)
- Total amount of loan is dependant upon value. If the appraisal does come in with a future value (after repairs are complete) high enough, you could be paying the difference between the total project cost and loan amount out of pocket.
- Rates are significantly higher than a standard FHA loan. This will impact your debt-to-income ratio and may interfere with qualifying for a 203(k).
- Beware hidden problems. If additional work comes up during the construction process, it can be difficult to get the lender to cover it.
- Contractors can be unreliable. Do business only with those you trust.
- 203(k) loans can take longer than others in underwriting, due to their complexity. After you close, you can expect the work to take an additional 30-90 days.
There are two types of 203(k) loans. One is the 203(k)s or Streamline, which lends up to $35,000 for repairs, but cannot be used for structural work. The other is the 203(k) Full, which does not have a repair limit and can be used even for a complete teardown and rebuild from the foundation.
Contact us today to see if the 203(k) is right for you!