Many people get inspired to buy homes that need serious work, thanks to lifestyle and reality television shows. If a house is considered uninhabitable, lenders usually don’t hand out loans to borrowers. The FHA 203K loan program is set up by the federal government to help buyers repair an old and/or damaged home. For instance, it is possible to buy a home and install new bathrooms or kitchens with funds from FHA program.
What Types of Repairs Would Qualify for an FHA 203K Loan?
There are two distinct categories of loans. The standard one is for remodels, structural repairs, and additions like garages and landscaping. The second type is limited to items, such as roofing, new appliances, and adding new energy conserving appliances. FHA loans can be for essential repairs like flooring, siding for the exterior, plumbing, and replacing HVAC systems to name a few.
How Much Can a Borrower Get?
The maximum amount will depend on the type of loan you apply for. The minimum for the standard loan is $5000 and the maximum is determined by the work required. Under the streamlined loan, borrowers are eligible to get the purchase price — up to $35,000. Owners need appraisals to determine the amount needed and the property has to fit the parameter defined by the FHA.
Pros and Cons of FHA 203K Loans
The main advantage of this loan is that borrowers can buy a home that needs repairs in a decent neighborhood. They also qualify for amounts they may not be otherwise able to afford. The down payment requirements are not as stringent and the interest rates are good, as well. Like a regular mortgage, check around and see which lender offers the best rates and what their discount point requirement is.
The downside is that not every property will qualify for an FHA 203K loan, and the funding comes with restrictions. Getting a loan is not easy either. Applicants have to hire independent contractors to take pictures and make a presentation to the lender. Detailed proposals have to accompany the presentation. It’s entirely up to the lender to advance the loan amount.
It’s best to do your homework on this loan program and then make a good case for funding.