Named after the Federal Housing Authority Section that outlines its guidelines, the FHA 203(k) loan fills a unique and important need for homebuyers buying a house that needs repair or modernization. The loan is for both homebuyers and existing home owners. The FHA insured 203(k) loan program enables borrowers to purchase or refinance their home and include the cost of renovation within the same loan. The guidelines also accommodate the borrower by having an expanded alternate collateral basis for the loan.
With the FHA 203(k), the maximum loan amount is the lesser of these two amounts:
1.) The “as-is” value of the property plus repair costs, or
2.) 110% of the “subject to completion” value of the property once the repairs and updates are completed.
The FHA 203k Standard allows borrowers to make a wide range of improvements, including structural changes and additions to the building footprint. This could mean fixing structural damage, adding another bedroom or even a second floor.
The 203(k) loan program is a FHA insured loan program that helps borrowers to obtain unique financing for a home loan purchase or refinance transaction.
Here are a few key highlights associated with the loan program:
- 3.5% required down payment
- Borrow up to 110% of the home’s future (subject to completion) value after renovation
- Available for owner-occupied, 1-4 unit properties, PUDs, Condos and REO properties
With your We FHA 203(k) loan you will be able to apply for one fixed or adjustable rate FHA insured loan that covers both the acquisition (or refinance) and rehabilitation costs of a property. Proper budget planning is the key to success. The project planning aspect makes sure that the costs are in line with finished values. This is done by collecting estimates from contractors before the loan is closed. Then a pre-construction appraisal is completed to verify that the value will be there post project.
Here are some general examples on how you could use an FHA 203(k) loan:
- You may want buy a home and a second floor master bedroom suite
- Install new EnergyStar rated windows and skylights
- Rehab a home with lead paint or add sprinklers with hard-wired smoke detectors
- Replace exterior aluminum siding with brick, stone veneer and/or composite siding
- Install a better septic system, a deeper well with iron filtration, or just a tankless hot water system
- Replace the roof and add seamless gutters (with gutter guards) & downspouts
- Replace floors with hardwood, laminate, tile and new carpet
- Adding major landscape work and site improvements including a paver patio
- Making accessibility for an elderly or disabled person a reality
- Installing energy conservation improvements including new EnergyStar rated appliances
Securing your We pre approval letter early in the process is critical, as you will need to establish your mortgage loan and project budget. Your Banc Home Loan Specialist will be able to address any questions you may have as you proceed through the loan process.