Whether you’re looking to purchase a house that needs some TLC, the FHA 203(k) loan might be the answer to your financing woes. Before you even begin drafting blueprints, however, learn what the FHA 203(k) loan is all about.
Demystifying the FHA 203(K) Loan
The FHA 203(k) loan enables you to combine your remodeling expenses into your home loan, meaning that you get one mortgage and one closing. You could borrow from your lender the combined amount of the home you want to buy and the cost of repair, which includes the materials and labor. The down payment would be based on your loan’s full amount, with your monthly mortgage payments being higher because of the added renovation costs.
The FHA 203k loan program offers two types of loans, the standard version and the streamlined version.
The standard 203(k) loan is developed for homes that need complex construction projects, such as structural alterations, room additions, or other repairs that you would have to leave the house for while construction is ongoing. This would likewise include inspections and architectural drawings.
The streamlined loan type, on the other hand, could be used for houses that don’t require structural changes and comes with a cap of $35,000. While the FHA has particular policies regarding the kinds of projects you could use the loan for, luxury items such as swimming pools or hot tubs are prohibited.
Is the 203(K) Loan Right for You?
Borrowers usually go with the 203(k) loan because they have a clear idea of what they want to be renovated. When deciding if you should apply for this loan, consider similar homes in your neighborhood first. If you’re planning on renovating your home to make it grander than similar homes in your area, you might find it difficult to recover your investment in case you decide to sell later on.
If you truly think that an FHA 203(k) loan is the best option for you, find a lender with ample experience on FHA 203(k) loans because they could recommend reputable renovation experts who’ve worked with them before.