November 29th, 2018
While a standard basic mortgage is often the go-to for most people looking for a home loan, taking a closer look at some of the other options out there is well worth doing. FHA 203K rehab loans, for example, are a great loan type that could be exactly what is needed for those thinking about buying a home that needs some renovation. And, since it's backed by the Federal Housing Administration, it's a loan that could be more easily secured by the average person.
How Does The FHA 203K Loan Work?
The FHA 203K rehab loan is very similar to the FHA loan. It's guaranteed by the federal government and is designed to be more accessible to those who may not qualify for a traditional mortgage from a private lender. However, the big difference is that with these loans the borrower can have an escrow account set up.
Funds are placed into that escrow that is then used to pay for improvements and repairs to the home. It's perfect for those who are buying a home that needs some improvements or repairs, or who want to tear down an existing home and rebuild on the foundation of the old one.
The idea here is simple - you can transform a 'fixer-upper' that sits on a great piece of property into your dream home. You can even get money to pay for rent or existing mortgage payments so you have a place to live while the renovations are being completed.
As the repairs on your home progress, the money in the escrow account is given to the contractor handling the work. These payments are based on milestones established at the beginning of the loan.
What Kind Of Repairs Are Covered By A Rehab Loan?
Virtually any type of renovation that you need to have done will likely be covered under the funds provided by an FHA 203K rehab loan. The main things to remember is that the foundation can't be disturbed or altered and that the house must be one to four units - condo complexes or similar structures aren't eligible.
Additionally, you can't complete luxury improvements on the home. Things like tennis courts or swimming pools are considered luxury improvements. Some examples of what your rehab loan will allow you to complete include:
• Any structural modifications and additions like new rooms, including second-floor additions.
•Repairing, upgrading, or replacing the plumbing or electrical work
•Replacing or upgrading windows
•Removing any threats to health and safety
•Kitchen and bathroom remodels
In short, if there is any kind of home improvement or repair that your home needs, your 203K rehab loan will likely cover it. This allows a huge amount of flexibility to homeowners, which is a key reason to consider it. But, it's not the only reason to consider these loans.
What Are The Big Benefits To An FHA 203K Rehab Loan?
The biggest benefit to these types of loans is obvious - you get a single loan that allows you to pay for the home and any repairs, then make a single payment instead of two. There are additional benefits as well including:
•The ability to quickly get increased equity in your home
•Easier to qualify for with lower credit scores
•Lower down payment requirements
If you're looking into purchasing a home that requires renovations and upgrades, an FHA 203K rehab loan could be exactly what you need. It's worth taking a look at and may be perfect for your needs. Our team can help you learn more about these loans and help you secure it.