As economic recovery begins, the 203K loan is emerging as a good way to restore run-down, foreclosed or fixer-upper homes. Buyers get a bargain, empty houses get owners, and neighborhoods get a boost.
What is a 203K loan? A Federal Housing Administration loan that is backed by the Housing and Urban Development Department.
How does a 203K loan work? In a single mortgage, a 203K lends the buyer enough money to buy the house plus enough money to fix it. The sum is paid back as a single mortgage, typically over 30 years, with interest close to a standard mortgage rate. A 203K loan requires a minimum down payment of 3.5%, only homeowners can use it, not investors, and only licensed contractors can do the work needed to refurbish the home.
The 203K has been around for more than 30 years, but its requirements, extra rules, inspections and paper work results in some lenders and Realtors not suggesting this loan. But with an increased inventory of bargain houses, foreclosures and “fixer-uppers”, Atlanta Home Buyers can utilize a 203K loan to help them find their dream home.
First, choose a lender well-versed in 203Ks, who is familiar with the flow of forms and inspections and can ease you through it. Second, for a smaller project, consider a newer version called Streamline 203K, which trims some red tape for repairs that cost less than $35,000.
Steps to a 203K home mortgage:
• Find an FHA-approved lender who is experienced in 203K loans and determine what size mortgage is best for you.
• Choose a house that needs work with a sale price low enough to allow repairs.
• Determine the required improvements. If they cost more than $35,000, you need to work with an FHA-approved inspector. Repairs like painting, roofing or remodeling a kitchen can be paid for with a 203K loan. Luxury items like a pool cannot. Choose a licensed contractor.
• Working with your lender, get an appraisal of the house’s future value after improvements. The lender can use this figure to make the loan, even though it’s higher than the current sale price.
• Take possession of the house at the standard loan closing. Your lender will set up an escrow account with the rehab money. Your contractor will get a money advance so work can be started. The escrow fund will pay out the rest of the funds as you go through a series of repairs and inspections.
Is a FHA 203K loan right for you? If you’re dream home is a great house, but needs a little work, a 203K loan could be perfect for you!
Finding a Certified and Insured FHA / HUD 203k Consultant Inspector is essential and you can depend on Georgia State Inspections for all your FHA / HUD 203k home inspection needs. Call Georgia State Inspections at 404.514.7457 to schedule your Atlanta Home Inspection or Georgia Commercial Inspection. We are the 203k Inspectors helping buyers to be confident in their investment.
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