Have you ever wondered if it’s possible to purchase a home that needs a lot of work while financing the cost of repair upfront?
The FHA 203k loan program lets home buyers finance property improvements while making the same minimum down payment (3.5%) on the total cost in the same mortgage.
Instead of doing a mortgage to buy a fixer-upper and then paying cash for repairs, take out a home equity line or financing separately via credit cards, home buyers can apply for a single FHA 203k loan at the time of purchase and get the money they need upfront.
The value of the property is determined by determining the lesser of the upfront cost of the property before repair plus the cost of those improvements or 110% of the ‘as completed’ appraised value after the rehab.
Like any other FHA loan, it is a government insured loan with the same advantages including more flexible guidelines, lower down payments and higher debt ratio limits.
The basic structure of the FHA 203k loan funds to the seller at closing the total amount they’re due for the property ‘as is’. The remaining funds for repair are set aside by the authorized escrow agent who will disperse funds to the contractors over the 6 months after closing that work is completed. Any funds remaining unused will be applied back to the loan as a principal reduction.
There are many nuances to the FHA 203k program which all of our team at NGG Mortgage are experts in coordinating to make these complex loans simpler. Please contact us if you are considering a renovation purchase.