The Loan & Renovation Mortgage Process
What is an FHA 203K Loan?
The FHA 203K remodeling loan program allows buyers to both purchase and renovate a home, packaging it into a single mortgage loan. This loan is designed for borrowers who are buying a home that needs repairs, modernization, or costly improvements, or for those who are refinancing their existing home that needs some work. Owner occupants, local governments and some non-profit organizations are eligible to use the 203K program to purchase single family residences, 1-4 unit buildings and condos (interior only). As with any loan, you will need to provide documentation of your income and assets, have your credit profile checked and have a down payment of at least 3.5%.
What improvements can be made with an FHA 203K loan?
- making energy conservation improvements
- elimination of safety and health hazards
- structural alterations and reconstruction
- adding or replacing floors and/or floor treatments
- enhancing accessibility for a disabled person
- modernization and improvements to the home’s function
- changes to enhance appearance and eliminate obsolescence
- reconditioning or replacing plumbing; installing a well and/or septic system
- adding or replacing roofing, gutters and downspouts
- major landscape work and site improvements
What does the loan and renovation process look like?
After the contract to purchase the property is written, a cost estimate is put together by a 203K consultant and/or contractor to determine the specification of repairs (SOR) that need to be completed. This estimate is submitted to the lender and an appraisal of the property is done next to determine the current value of the home vs. the home’s future value based on the improvements. At closing, funds to purchase the home are disbursed and the money to complete the rehabilitation work is placed in an escrow account. As the contractor’s work proceeds, funds are released to pay them following inspection and completion of their work. Renovations are required to start within 30 days of closing the loan and should be complete within six months. If any funds are left over once the repair work to the property has been finished, additional improvements can be made or the money can be used to pay down the principal mortgage balance. Additionally, if the home is not habitable during the renovation period, the loan allows for up to six mortgage payments to be included in the funds to cover this period.
If you are thinking of buying a property that needs some TLC, we can help you find it! Also, to see if you qualify for an FHA 203K loan or for more information on the benefits of using this program, contact Cara Hunt Erickson at Atlantic Bay Mortgage.