THE REHABBERS’ GUIDE TO 203(K) LOANS
A lenders’ weak appetite for offering credit doesn’t have to sour your upgrade dreams. The FHA 203(k) loan blends remodeling & mortgage costs together, whether you’re buying or refinancing an existing home loan to pay for upgrades.
First, here are some 203(k) basics:
- 15- or 30-year term option
- Fixed-rate or ARM option
- 3.5% down payment for loans of $625,500 or under & 5% for loans above $625,500; other FHA loan qualifications apply
- Interest rate slightly higher than market
- Higher fees compared with equity or other FHA loans, for such things as architectural plan reviews, title checks, appraisal, and FHA inspections
- No balloon payment
- Loan amount = projected value post-rehab, including the cost of the work
- FHA loans take longer to close than conventional mortgages
- Entails more paperwork than a straight mortgage loan
Rules for what you can and can’t do with a 203(k):
1. You can buy a fixer-upper so terrible it wouldn’t qualify for a regular home loan. Whether buying or refinancing, all that needed work might keep your home from qualifying for a regular bank loan. Banks don’t finance homes in ill-repair because they’re too hard to resell if they have to take the house back via foreclosure.
For the other 12 rules, hit us up via email.