What You Need To Know About the 203k Mortgage
In the late 1970s, the U.S. Department of Housing and Urban Development and the Federal Housing Administration launched an initiative called a 203k mortgage, that was intended to revitalize urban communities. This successful initiative survives today under the provisions of the FHA Loan Program, which provides 203k mortgage loans to individuals looking to purchase and rehabilitate existing properties. These loans offer a variety of benefits for both refinancing and remodeling.
203k Mortgage Details
The 203k mortgage program allows borrowers to include both purchasing and renovating costs in a single loan, thus removing the hassle of applying for a mortgage first and then a construction loan. It can be put toward older homes in need of repair, or toward the purchase of a home that will then be immediately renovated. The amount of the 203k mortgage is determined according to the estimated value of a home after renovations are completed. Because the mortgage often covers homes that would otherwise be considered high-risk amongst lenders, it is insured by the FHA.
203k Mortgage Benefits
The relaxed application requirements, the lower interest, and the flexible payment plans make this loan a good option for individuals in low-income neighborhoods who might not normally qualify for other construction loans. All closing fees up to 6% of the purchase price can be paid by the seller and the required down payment is significantly reduced, which makes this mortgage a more affordable option for those on a limited budget. Because the 203k mortgage encompasses purchase and construction costs, borrowers can also save thousands in fees that would otherwise be attached to multiple loans.
Regular and Streamlined Mortgages
Those interested in applying for a 203k mortgage can choose from either a regular or streamlined (or modified) loan. Regular mortgages are granted according to the "as-is" value of the building plus the cost of renovation, or by calculating 110% of the expected value after the remodel. These mortgages are best for those buildings that need major structural repairs. Streamlined mortgages are best for homes that need minor repairs or upgrades, especially since the maximum amount allotted is $35,000. Both, however, can also be put toward refinancing costs.
203k Mortgage Application Requirements
In order to qualify for a 203k mortgage loan, applicants are generally required to have a minimum credit score of 640. Applicants must also be able to demonstrate a stable income and at least two years of consistent employment, and must submit to employment verifications. Potential borrowers must also have the property in question appraised by an FHA-approved management company, who can verify that the building meets all requirements for 203k mortgage approval.
Qualified Property
A 203k mortgage loan [http://203khomeremodelingmn.com/203k-loan-requirements/] will only be granted to those looking to purchase, refinance, and/or rehabilitate an existing home that has been standing for a minimum of one year. The loans are not provided to low-income applicants looking to build or purchase a brand new home. Homes just purchased through foreclosure auctions are also generally ineligible for this loan, since applicants must be able to provide an accurate estimate of the rehabilitation work done, and they will not be able to inspect a foreclosed home in detail before purchase.
Required Appraisals
Depending on the lender, the terms of the 203k mortgage, and the condition of the property being rehabilitated, one or more appraisals may be required. Often, loan terms simply require an appraisal to determine the estimated value a building will hold after renovations, so that the total mortgage amount can be finalized. Sometimes, however, as in the case of some regular 203k mortgage loans, an "as-is" appraisal is also required. Appraisals may be waived for buildings or properties already owned in part by the Department of Housing and Development.
Suitable Repairs
The 203k mortgage loan can be applied for any major or minor structural repair, as long as the foundation of the original building remains after any demolishment. Specifically, regular and streamlined loans can be used to fix or replace gutters, install new heating, cooling, and ventilation systems, remodel kitchens and bathrooms, paint the interior or exterior of a building, rip up and replace flooring, or install new windows and doors--to name just a few of the most common repairs requested.
203k Mortgage Details
The 203k mortgage program allows borrowers to include both purchasing and renovating costs in a single loan, thus removing the hassle of applying for a mortgage first and then a construction loan. It can be put toward older homes in need of repair, or toward the purchase of a home that will then be immediately renovated. The amount of the 203k mortgage is determined according to the estimated value of a home after renovations are completed. Because the mortgage often covers homes that would otherwise be considered high-risk amongst lenders, it is insured by the FHA.
203k Mortgage Benefits
The relaxed application requirements, the lower interest, and the flexible payment plans make this loan a good option for individuals in low-income neighborhoods who might not normally qualify for other construction loans. All closing fees up to 6% of the purchase price can be paid by the seller and the required down payment is significantly reduced, which makes this mortgage a more affordable option for those on a limited budget. Because the 203k mortgage encompasses purchase and construction costs, borrowers can also save thousands in fees that would otherwise be attached to multiple loans.
Regular and Streamlined Mortgages
Those interested in applying for a 203k mortgage can choose from either a regular or streamlined (or modified) loan. Regular mortgages are granted according to the "as-is" value of the building plus the cost of renovation, or by calculating 110% of the expected value after the remodel. These mortgages are best for those buildings that need major structural repairs. Streamlined mortgages are best for homes that need minor repairs or upgrades, especially since the maximum amount allotted is $35,000. Both, however, can also be put toward refinancing costs.
203k Mortgage Application Requirements
In order to qualify for a 203k mortgage loan, applicants are generally required to have a minimum credit score of 640. Applicants must also be able to demonstrate a stable income and at least two years of consistent employment, and must submit to employment verifications. Potential borrowers must also have the property in question appraised by an FHA-approved management company, who can verify that the building meets all requirements for 203k mortgage approval.
Qualified Property
A 203k mortgage loan [http://203khomeremodelingmn.com/203k-loan-requirements/] will only be granted to those looking to purchase, refinance, and/or rehabilitate an existing home that has been standing for a minimum of one year. The loans are not provided to low-income applicants looking to build or purchase a brand new home. Homes just purchased through foreclosure auctions are also generally ineligible for this loan, since applicants must be able to provide an accurate estimate of the rehabilitation work done, and they will not be able to inspect a foreclosed home in detail before purchase.
Required Appraisals
Depending on the lender, the terms of the 203k mortgage, and the condition of the property being rehabilitated, one or more appraisals may be required. Often, loan terms simply require an appraisal to determine the estimated value a building will hold after renovations, so that the total mortgage amount can be finalized. Sometimes, however, as in the case of some regular 203k mortgage loans, an "as-is" appraisal is also required. Appraisals may be waived for buildings or properties already owned in part by the Department of Housing and Development.
Suitable Repairs
The 203k mortgage loan can be applied for any major or minor structural repair, as long as the foundation of the original building remains after any demolishment. Specifically, regular and streamlined loans can be used to fix or replace gutters, install new heating, cooling, and ventilation systems, remodel kitchens and bathrooms, paint the interior or exterior of a building, rip up and replace flooring, or install new windows and doors--to name just a few of the most common repairs requested.