The FHA (Federal Housing Administration) has a few loan options for potential homeowners and one of their most recently added programs is that of the 203(k) home loan. Specifically developed to assist in the remodeling and renovation of homes, this type of loan offers homeowners the chance to purchase homes in need of repair as well as have the finances to make those repairs, all rolled into one mortgage loan. It also focuses on society and neighborhood revitalization, and maintaining America’s quality communities.
What Exactly is a 203(k) Loan?
As we mentioned, the 203(k) home loan program was developed to give homebuyers the opportunity to purchase homes in need of repair or modernization without fear of dipping into savings accounts or being unable to afford to fix the home. For example, if a potential homebuyer finds a house for sale in need of new roof, they can use a 203(k) loan to purchase the home as well as have the finances to replace the old roof. This is opposed to purchasing the home and then needing to save up or take out another loan to repair the roof. Another obstacle that homebuyers face when looking to buy a home in need of modernization is that most banks won’t lend the money required to purchase the home until the items in the home are fixed but at the same time, the homebuyer can’t complete the repairs until the home has been purchased. Using a 203(k) loan in this situation offers a solution that works for everyone.
Just like a traditional FHA loan, a down payment is necessary for a 203(k) loan and home purchasers can also expect to undergo credit qualification, loan limits and other traditional home buyer requirements.
Two Types of 203(k) Home Loans
There are two unique types of 203(k) home loans. The first is the Full FHA 203(k) Loan. This loan is for larger home renovations that typically exceed the cost of $35,000 and requires that a HUD (United States Department of Housing and Urban Development) consultant approve the price and changes necessary for the home.
The second type of 203(k) loan is the FHA Streamline Loan option. This 203(k) loan alternative is for homes in need of improvements or renovations (no structural repairs can be included) that are less extensive and costly than what would be required for a Full FHA 203(k) Loan. This loan type is considered streamlined because a HUD consultant is not required to appraise the premise and the limit on the loan cannot exceed $35,000- thus reducing the amount of time and paperwork required to complete the home buying process.
Refinancing an FHA 203(k)
The FHA Streamline 203(k) refinancing program is a wonderful refinancing option for homeowners as it provides fiscal assistance between $5,000 and $35,000 above a current loan balance for necessary housing repairs. Once the work has been completed, a HUD consultant/inspector must sign off on the home’s repairs and any money that was not used for repairs is returned to the loan lender as a way of paying down the remaining loan balance.
Another way that a FHA 203(k) loan can be refinanced is through a cash-out refinance. This is only possible if the home’s repairs significantly improved the value of the home to allow for a cash-out refinance. Another time when a refinance might be of interest is when the homeowner may wish to change from an ARM (adjustable rate mortgage) to a fixed interest rate.
FHA 203(k) Loans and Refinancing Options
The Federal Housing Administration has a few loan options for those interested in homeownership and the 203(k) home loan is perfectly designed to assist homeowners in purchasing or refinancing a home in need of repair.