The Real FAQs: Inside the FHA 203(k) Loan Program
- posted 6.25.2011
- Rosemarie Pirio
- Home Loans
Picture a bleak, broken-down house that needs a lot of work, but with the right repairs would be a golden home to live in. Now imagine that you decide to purchase that home, invest some money into the repairs, and turn it into the house of your dreams. Normally this would mean taking out various loans, but with the FHA 203(k) Home Improvement Loan this isn't so.
The FHA 203(k) Home Improvement Loan, a program created by the Federal Housing Administration, was designed with the primary goal of rehabilitating and repairing neglected houses. This program is great for those looking to use the FHA 203(k) to purchase their first home or refinance with the FHA 203(k) and spruce up the home they currently dwell in.
Naturally, when considering this opportunity, many questions come to mind as to how it all works. Hopefully, this little Q&A will help answer most of your questions:
How Is an FHA 203(K) Home Improvement Loan Different from Any Other Loan?
In a traditional mortgage program the homebuyer usually needs to obtain financing first to purchase the house, financing to do the repairs, and then a permanent mortgage to pay off the interim loans. With an FHA 203(k) Loan, the borrower can finance both the purchase and rehabilitation of the property under one loan.
What Rates Are Offered for an FHA 203(K) Home Improvement Loan?
You can choose from either a 30 or 15-year fixed rate loan.
How Is the Mortgage Amount Calculated?
The property is appraised taking into consideration the cost of the work plus the current value of the house.
Who Can Administer an FHA 203(K) Loan?
The government has strict regulations as to who can administer this type of loan. Only an FHA-approved lender can set you up with an FHA 203(k) Home Improvement Loan.
What Types of Properties Are Eligible to Take Advantage of This Program?
The property must be a one- to four-family dwelling that has been completed for at least one year. "Mixed Use" properties and individual condominium units are eligible with approval by FHA.
What Are Some Eligible Improvements That Can Be Made?
Structural repairs, remodeling, major landscape work, improvements that raise the value of the property, and new standalone appliances are just some of the improvements that can be purchased through the FHA 203(k) Home Improvement loan.
Are There Additional Advantages in Choosing the Fha 203(K) Home Improvement Loan?
Let's start with low interest rates. Since you'll be dealing with the Federal Housing Administration, you know you'll be getting a fair interest rate. These tend to be considerably lower than other rehab loans in the commercial marketplace.
Since this is a rehabilitation loan, another advantage is you'd be able to purchase a house at a price lower than the current market value.