I'm sure we are all guilty of watching Fixer Upper on HGTV and get the itch to fix up a home of our own but we say to ourselves "But I don't have the funds to do it."
Well, think again, because there is a way for you to buy a home that needs to be completely remodeled and fix it up as your dream home!
The FHA 203(k) loan allows the buyer to finance the purchase price of the house and the cost of needed or wanted repairs--all in one loan!
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NO scrambling around with the seller to try and fix things before closing.
NO pounding the pavement to find a 2nd mortgage that will finance the repairs.
NO living with a leaky roof for 5 years while you save up the money to repair it.
A 203(k) loan takes care of these repairs and more with one loan transaction!
Now, there are two different kinds of 203(k) loans:
Streamline 203(k) loan-
- No structural changes allowed
- Maximum of $35,000 can be financed for repairs (no minimum)
This loan is designed for minor remodeling--remodeling the kitchen, redoing the flooring, remodeling the bedrooms, remodeling the bathrooms, etc.
Standard "full" (203k) loan-
- Structural changes ARE allowed
- No maximum repair limit as long as the entire loan is below FHA's maximum loan amount for the region
These loans are perfect for:
- A buyer that may not quailfy for a large loan but find a home that needs work at a low price
- A buyer that cannot afford a large down payment
- A buyer that does not have the downpayment but would like to receive the downpayment (3.5%) as a "gift" from a family member
- A buyer that just cant seem to find that dream home and want a "blank slate" to create their dream home
- A buyer that finds a great investment property that they would like to potentially flip (requirements)
- First time home buyers
You will be surprised at what the 203(k) loan allows you to do. This loan can be used soley for cosmetic purposes, not just when the home is a disaster zone! You can remodel a kitchen or bathroom, add amenities like granite counter tops or high end appliances, redo the flooring, etc.
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The maximum loan amount is the same for 203(k) loans as it is for standard FHA loans.
In addition, the 203k loan amount must not exceed:
The purchase price plus rehab costs, less the 3.5% down payment
Or, 110% of the expected market value once all work is complete, less the 3.5% down payment
For instance, let’s say a home is worth $100,000 before repairs and the borrower wishes to finance in $20,000 in rehab costs including fees. The maximum base loan amount before upfront mortgage insurance is:
$120,000 – 3.5% down payment= $115,800
If the appraisal states the home will only be worth $105,000 after all repairs are done, the maximum loan amount is based on 110% of the future appraised value:
$115,500 (110% of $105,000) – 3.5% down payment = $111,457