What to Know About a 203k Home Loan

Are you planning a major home improvement or renovation, such as replacing a roof or deck? Learn about the 203k loan, eligibility requirements and more today.

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Your 203k Home Loan GuideAre you planning a major home improvement or renovation? It can be difficult to finance important repairs and upgrades out-of-pocket. Homeowners and nonprofits may want to make it less stressful to come up with funds by taking out a 203k home loan on a property requiring rehab. A range of projects may be covered under this loan. Homeowners who are interested in purchasing new appliances, replacing a deck or repair a roof may want to use this loan to reach their goals. Individuals intending to rehab a distressed property may also want to apply for a 203k home loan.

Learn more about the 203k loan, eligibility requirements and more today.

203k Loans and Home Renovations

This type of home loan helps homeowners make necessary upgrades to a home. A fixer-upper can be upgraded using this loan and any 203k loan payments may be added into mortgage payments. This loan can also be used to cover the purchase cost of home and any necessary improvements. The FHA insures such loans and this makes it easier for applicants to be approved by lenders. A borrower may take out a loan for almost the entirety of the home's value when all desired work is completed.

Who Can Apply?

This is not a loan for those that may qualify for a conventional home loan. These loans are generally used to rehab distressed or poorly maintained properties. Those with properties that require a few minor repairs may want to look into other FHA home loan products. Those who can apply include owner-occupants and nonprofits. In addition to traditional homes, some townhomes, condos and unit properties may be eligible, but there may be restrictions related to those types of property. All projects that will be paid for through a 203k home loan must be completed within a six month time frame. Work must be performed by a licensed contractor. Those who may be able to qualify for a standard loan may want to apply for that option first as interest rates with 203k home loans are 1 percent higher.

203k Home Loan Basic Requirements

Applicants will need to take a few steps in order to receive funds. It will be necessary to speak with a 203k mortgage lender, work with a 203k consultant and contractor to perform a preliminary market analysis, write a sales contract and provide a Specification of Repairs (SOR) before a lender can offer a firm commitment application. Basic eligibility requirements include:

  • A history of steady income;
  • Good credit; and
  • A loan request of at least $5,000 and up to the limit specified in a location;

An approved lender can help homeowners and non-profits through the process. A HUD consultant can also help with the preliminary feasibility analysis. A number of documents must be completed and submitted and licensed contractors must follow specified guidelines and send required forms.

What Repairs Are Covered with a 203k Loan?

Approved applicants can cover the expenses of a range of common home renovation projects. Homeowners can use a 203k home loan toward:

  • A complete reconstruction;
  • Lead paint removal cost and mold issues;
  • Cracked wall repair;
  • New siding;
  • Replacing or repairing a roof;
  • Painting the exterior or interior of a property;
  • New flooring;
  • Replacing a porch, deck or patio or new construction; and
  • New appliances.

Homeowners who may not be eligible for a conventional home loan may want to look into a 203k home loan to address a range of concerns. Speak with a lender to learn more about loan payments and interest rates on a 203k home loan.

Posted by Gary Ashton on
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