203k Loans are perfect for
- New Roof
- New Fence
- Fresh Paint
- Remodel or Add Bathroom
- Updated Kitchen or New Appliances
- Repair Rotten Wood or Termite Damage
- Mold Remediation or Water Damage
- Upgrade Flooring – hardwood, tile, carpet
- Home Addition – bonus room, garage, guest suite
- New Heating or Central Air System
- Upgrade Existing Electrical or Plumbing
- Repair Existing Swimming Pool
An FHA 203k loan allows you to purchase a home and include additional funds for improvements all in one loan. They’re ideal for buyers who want to purchase an older home that “needs a little TLC” and do repairs on it, much like the popular home renovation show Fixer Upper. Without those repairs, the home might not be suitable for living and lenders might be unwilling to fund loans on a property with problems.
Using a 203k loan to refinance your current home is another great idea. Let’s say you have a growing family, and need more space but can’t afford to buy a larger house. Use a 203k loan to finish off the basement or attic, or even build a second story or home addition. Maybe you just need that additional bathroom, or you love the neighborhood and schools but want an updated kitchen with a new family-room added on. A 203k refinance can also enable you to stay put in your home longer by adding a downstairs bedroom or other accessibility items. With a 203k refinance, the new loan pays off your existing loan balance and includes the additional funds for the new renovations, all in one new loan for you. And remember, all 203k loans are based on the projected after-improved value, so you don’t need to have any current equity to do a 203k loan. But if you do happen to have some equity, that will allow you to include all of your closing costs in the new 203k loan so you don’t have to come to closing with any funds.
This all-in-one process for buying a fixer-upper and turning it into your dream home is an appealing aspect of renovation loans, and 203k loans are also backed by the federal government which means lenders take less risk when offering this product, making it even easier to get approved. For example, if you want to buy a home that needs a brand new bathroom and kitchen, an FHA 203k lender would loan you the money to buy or refinance the house, plus the money to do the necessary renovations to the kitchen and bathroom.
Whether it’s finding a great deal on a foreclosure, or working to improve your own home with a refinance, rolling the cost of the repairs and upgrades into the life of the home mortgage loan can really help add value to the house. You can borrow money based on the future value of the home once the repairs are done, so you’re amortizing the cost of the repairs and upgrades into the investment, which means you’re getting instant equity. For example, if you buy a home for $60,000 that’s in a neighborhood of $100,000 homes and you put $20,000 worth of work into it, you’re now the owner of a more valuable home that you paid $80,000 to buy. You have $20,000 instant equity.
203k loans are great for improving a property that you hope to live in, but make sure you find an experienced 203k mortgage loan specialist to help with this process. You want someone who’s done these loans and knows the government requirements. We understand the entire process from finding the right house, to finding the right contractor, to making sure all the work is done correctly to your new home. We have a dedicated Renovation Loan division that only handles these loans for us; dedicated team of loan officers, processors, underwriters and draw specialists. This team is focused on getting your loans through the process with you, the customer, first in mind. We have over 20 combined years of Renovation experience, we are your experts!
203k loans are only for use in a home you are going to live in as the owner-occupant. Investors are not eligible to use a 203k loan for financing in a house they want to buy. The program is designed for most residential property types, including a single family home, a townhome, as well as 2-4 unit homes. If you are looking at a multi-family home (2-4 units), remember you must occupy one of the units to be an owner-occupant. You can use a 203k loan on a condo property, but are limited to interior projects only.
2 Loan Options
Within FHA Renovation loans, there are 2 different types, the Limited Repair203k and the Standard 203k. Each has benefits and limitations.
- Limited Repair – is limited to less than $35,000 in renovations and is intended for simple projects with no structural repairs needed. There is no minimum amount of repairs required, and a complete bid from a licensed contractor is needed.
- Standard – is for the more complicated job or larger project with no set limit on the amount of repairs. There is a minimum repair amount of $5000 for this program, and both a bid and a 203k Consultant’s report is needed.
Your 203k loan expert can help determine which 203k is right for you and your new home, and guide you through the process.
Interest rates will vary, depending on rates in general and your credit. Expect to pay a rate that’s ½% or so higher than you’d pay on a non-renovation loan. Think of this as the cost of bundling both your purchase and improvement loans into one. Plus, lenders need to do extra work tracking the progress of your project and handling payouts. 203k loans are fixed rate loans with repayment up to 30 years.
With the 203k loan, like other FHA loans, you can pay as little as 3.5% in down payment. Keep in mind, on a 203k loan the down payment is based on the total acquisition cost. So if you are using a 203k loan to purchase your new home, the down payment would be based on the sales price of the house plus the renovation amount. 203k loans give you the opportunity to make significant improvements to your home, while also doing the things that matter most to you. If you want to use green or energy-efficient appliances and materials, you’re free to do so. You can’t fund luxury items through a 203k, but you can make dramatic improvements. You must use licensed contractors for all work and it’s important that they know you’re using a 203k loan. The 203k process is all about paperwork and following certain rules, so working with a lender with experience in 203k loans is crucial when remodeling your home.
After your loan closes and construction begins, you authorize when repairs get paid for and only after the loan closes and you are the legal owner of the home. You will meet with the inspector and/or 203k Consultant during renovations to discuss what work has been completed and what will be paid for. You will have input all along the way, and our Draw Department is right beside you to answer any questions or concerns.
With a Limited Repair loan, we can issue some of the material cost shortly after closing, and then the balance is paid when all the repairs are completed.
With a Standard Renovation Loan the money is issued on a draw basis after a portion of the work is completed and inspected. The number of draws depends on the size and complexity of the renovation project. There can be up to 5, but 3 is the most common. At each draw, whether the loan is Limited or Standard.
Whether it’s a major addition or minor repair, this is where experience is a must! We’ll be your guide through the entire process to help you with every detail along the way to your dream home.
Ultimately, 203k renovation loans are a convenient way to finance your home improvements without the need for perfect credit, huge down payments, or high interest rates. The relaxed credit requirements and higher Loan to Value (LTV) ratios make a Renovation Loan perfect for first time home buyers and people looking to remodel and make that house their home!
Call us today to learn more about renovation loans!
Why should you use eRates Mortgage for your FHA insured 203k loan?
- We have years of Renovation lending experience
- Our dedicated Renovation loan team is focused on you, the customer
- eRates Mortgage is an FHA approved lender
- We underwrite and process all of our loans in house
- Our licensed loan officers are given every resource available to keep up with the rapidly changing guidelines. If you have questions, we have the answers.
Sound like the right loan for you? Then APPLY NOW, or call one of our licensed loan officers at (888) 294-8863!
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