Source: Hometown Living
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Renovation loans such as the FHA 203(k) rehab loan offers homeowners as well as homebuyers the opportunity to refinance or finance a home along with a renovation. Instead of having to apply for two separate loans, the FHA 203(k) rehab loan allows homebuyers to purchase or refinance their primary home and renovate it with one convenient loan. A rehab loan takes away the anticipation homebuyers have while waiting to come up with the finances to renovate. In the past most banks would not grant a mortgage on a house that was in bad shape. Instead the fixer upper would have to be rehabbed before granting a mortgage. This rehab loan gives the opportunity for people to buy and renovate a home with the same loan.
This does not mean that anyone can take out a FHA 203(k) loan, one must find a home that needs cosmetic work done. The homebuyer must meet all lender requirements of the loan such as, minimum credit scores, debt-to-income ratios, and proof of income. After the loan is approved a date for closing will be set. The repairs must start 30 days after the closing and must be completed in six months. There are two options to the rehab loan one is a Limited K Loan and the other a Consultant K Loan. The Limited K Loan mean the contractor will receive 50% of the amount agreed upon 15 days after the closing. The remaining balance is then paid after the work is done. As for the Consultant K Loan, a HUD 203(k) consultant will work with the owner. The consultant will inspect the repairs being made. Both rehab loan type must use any remaining funds from the loan after renovation will be applied to the principal balance of the loan. |
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How much does a family pay?
The amount of the loan will depend on many different factors such as price of the home, neighborhood, scheme of work, and others.
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Who qualifies?
When applying for the FHA 203(k) rehab loan on must meet all of the lender requirements such as including minimum credit scores, debt-to-income ratios, and proof of income.
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How many units?
The FHA 203(k) rehab loan can only be applied to a home that meets the requirements and guidelines set by the Department of Housing and Urban Development (HUD). These included a home that needs cosmetic or updating work done.
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