Monday, December 22, 2014
Interested in purchasing a fixer-upper but worried about the costs associated with undergoing extensive renovations? The FHA 203K Loan is the answer to your prayers. Designed to help homebuyers finance homes with expected repairs to be made, an FHA 203K loan combines the business of securing a home loan with the business of securing a loan for expected construction or renovation costs.
The Streamlined FHA 203K Loan covers the expected appraised value of the home after completed repairs are made, up to $35,000 over the purchasing price to cover renovation costs. Some repairs eligible for coverage with the FHA 203K loan include roof replacement, electrical or plumbing work, kitchen remodeling, accessibility renovations, and painting. Although many eligible repairs can be cosmetic, including kitchen remodeling and painting costs, luxury items and upgrades are not permitted or financed by the loan. Other renovations that may not be covered by the loan include repairs to detached structures of the home such as sheds, swimming pools, and gazebos.
The Standard FHA 203K Loan is intended for more complicated, extensive home renovations that may require the use of a consultant, architect, or engineer to plan for structural changes, landscaping repairs, or renovations that may not allow you to occupy the home during construction. Loan amounts vary for the Standard FHA 203K, more information on that and the Streamlined FHA 203K can be found here.
Qualifications for a FHA 203K loan are the same for other FHA loans. The only exception to qualify for an FHA 203K loan is that the potential homeowner have enough cash or credit reserved to pay for the materials and labor associated with the renovation until they are reimbursed through one of the two draw periods. The first draw period is at the beginning of the project, where 50% of the loan is given to the borrower. The second draw period is after the project is completed, wherein the rest of the loan will be accessible to the borrower. Exceptions to this requirement involve a contractor who may choose to cover the costs of labor and materials of the project.