Buying and remodeling a home has always presented a financial dilemma: What is the most effective way to finance the purchase of the home and the cost of the remodel, without paying too much out of pocket? Often times, homebuyers will shy away from these types of properties because they don’t want to pay cash or make a large down payment when they buy, then have to turn around and pay out of pocket to rehab the house. There’s a great financing option out there if you’re willing to put up with a little red tape!
The FHA 203k loan program may not be as well known as “typical” FHA loans, but it can be an excellent financing tool. Basically, the 203k loan allows you to buy and rehab a home, all with one loan, all done at the time of purchase. Tea FHA 203k Loan has been around for years and was designed to streamline this process.
There are some guidelines and restrictions (after all, the FHA is a government agency…), but it can be a very effective way to finance property acquisition and rehabilitation costs with a low down payment. Here are some brief highlights from the FHA 203k Loan Program:
- Only properties with one to four units are eligible
- The structure must have been completed for at least one year.
- Cooperatives are excluded
- Condos are eligible, but only for interior rehab
- Demolition of the existing structure is acceptable, provided the existing foundation is maintained.
- Rehabilitation work must be performed by an FHA-certified contractor
There are many other restrictions, regulations, and procedures, but it can definitely be worth it. This loan process can take a little longer than a traditional FHA loan, and the appraisal usually costs a little more (they have to estimate 2 values), so you’ll need to keep that in mind as well. The lender must also be FHA approved, but the down payment can be as low as 3.5%.
Thinking of remodeling your existing home? This particular FHA loan program is for acquisition and rehabilitation only, but there are other financing alternatives for remodeling projects only. You can read more about the FHA 203k loan and review HUD’s FAQs using this link. We also invite you to speak with one of our preferred lenders about this program and how it could benefit you.
The FHA 203k loan program isn’t perfect for every situation, but it may be worth a look if you’re planning to buy and rehab a property.