Got a fixer-upper? Get this loan
The FHA's 203(k) loan may be the perfect financial fit for renovating an imperfect home.
© Comstock/Getty Images
The housing crisis has left thousands of homes across the country in a state of neglect. Some sit empty after foreclosure, while others have suffered because their owners haven't had the money for repairs. If you live in a home that needs a little TLC or you want to purchase a home that needs improvements, the Federal Housing Administration's 203(k) program may help you finance those long-needed repairs.
If you've been browsing foreclosures, you may already have noticed that many of them need some attention. But if coming up with the cash for a down payment and closing costs is already depleting your savings, funding a major renovation may be a deterrent to your home purchase. That's where 203(k) loans come in.
A 203(k) loan requires a down payment of 3.5%, as all FHA mortgage loans do, but the total loan amount will be based on the sale price plus the estimated cost of renovation. An appraiser will need to estimate the "as-repaired" value of the home as part of the loan approval process.
Refinancing with an FHA 203(k)
You can also use a 203(k) mortgage loan for refinancing. In the past, many homeowners would take out a home-equity loan to pay for home improvements, but now that home values have dropped and mortgage-approval guidelines have tightened, many homeowners are unable to qualify for a home-equity loan.
But with a 203(k) refinance, you can wrap your refinance and renovation costs into one loan. If you know roughly what your repairs will cost, you can use a mortgage calculator to estimate your monthly payments based on today's mortgage rates and the total new loan amount.
- MSN Money: Bank: We're defaulting, but don't you dare
FHA 203(k) requirements
Before you apply for a 203(k) loan, you should know its requirements. Here are some of the stipulations:
- You must be an owner-occupant; this loan is not available to investors.
- You must meet typical FHA mortgage loan requirements in terms of your credit score.
- You must make a down payment of 3.5% or have a loan-to-value of at least 97.5% if you are refinancing. (Bing: What is a loan-to-value ratio?)
- You will need to pay mortgage-insurance premiums both upfront and monthly. While these insurance premiums can be wrapped into your mortgage payment, they do increase the cost of the loan.
- FHA 203(k) loan interest rates typically are slightly higher than standard FHA mortgage rates.
- A supplemental fee of $350 or 1.5% of the cost of repairs is required and can be wrapped into the loan balance.
- The total mortgage loan amount — sale price and repairs — must be under the maximum FHA loan limit for your area.
Article continues below
Borrowers have the option of a streamlined 203(k) loan that allows for a maximum of $35,000 in repairs and cannot include structural repairs. If your renovation costs are higher, you can apply for a standard 203(k) loan. All repairs are limited to items that improve the value of the home, such as a new deck, windows, flooring, appliances or heating and air-conditioning systems. Luxury improvements such as a swimming pool are not included.
- On our blog, 'Listed': FHA won't deny loans over collections
If you opt for an FHA 203(k) loan, real-estate experts recommend that you work with lenders and licensed contractors who are familiar with the rules of the program. Interview a few of each to find the ones who best understand your financial needs and goals before you commit.
These spamer's need to get a life! This is not the place to look for partner or lover.
MSN needs to put a stop to this crap!!!!!!!
Once again I am sorry I can only go by what’s happening to me currently, and a realtor saying 100.00 on the 3.5% down I find hard to believe, when Wells Fargo said it is a government mandate that at least 3.5% must come from the buyer.
Sorry: I re read the blog, my fault. HUD said, well talked to HUD myself and I agree with their guidelines they would be great if they were followed, problem is the lenders don’t follow them and nether do the realtors.
The realtor will tell you that, until you get to you lender and find out it's their requirement for you to be approved. Wells Fargo's mandates you have a minimum of 3.5% out of your own pocket.
As explained to me, it's in three parts 1) Down stroke 2) Closing 3) prepaids.
1) you will find with only 3.5% down you will pay MIP and PMI
2) The 203k allows all fee's to be rolled up in the loan including consultant fees
3) If you have to pay both sides of closing add another 7k on to what you will owe.
By Michele Lerner of moneyrate
Michele are you trying to cash in on the scam too. I am only being honest by say do your homework...
need pointers, will help blog back and I will try to help. There are many pit falls so beware
Hell I am reading an article about 203k mortgages and getting dating blogs. I think the other blogger was right stop the spam.
the quality of the contractor makes or breaks this arrangement. be ruthless with your contractor and be very very specific in the scope of work. else you will get the bare minimum and pay the full price. you need to have model numbers for the shower heads, sink faucets, etc. else they will charge you and give you the $8 special at home depot. this type of contract requires work on the home owners part. the contractor should only make some profit off labor not materials which you can price check easily.
If your going to use a 203k you better do your homework. I have been through the ringer with Wells Fargo and let me tell you a nightmare does not even come close to where we are in this loan.
HomePath_001: Scam will not take open bids, has to be who they appoint.
Realtor_002: Scam with HomePath they were appointed by HomePath/Fannie Mae supposedly overseen by HUD. I use to believe but it’s only a joke now.
Lender_003: Scams blaming it on the other two. Your fee’s and closing cost will go through the roof, consultants and their fee’s, paying both side of closing and all three saying that’s the way it is now
The 203k here in Atlanta is going very strong and can be a very easy loan to do if you are dealing with the right 203k consultant and 203k lender. Experience really counts here if you want to have a drama free experience. Feel free to contact me at 404-925-7163 for more details or how to contact the right lender.