If your dream house needs some repairs, you should look into an FHA 203k loan. The process can be pretty confusing, so you may have a few questions such as: how to get the loan, what are the requirements, and other aspects of the financing. Here are the answers to some of the most common questions people have about home improvement loans.
What types of loans are available?
There are two different types of loans available, streamlined and standard FHA 203k loan. A streamlined loan is designed to make cosmetic repairs whereas a standard 203k loan allows you to make structural and extensive repairs. This type can include repair or replacement of flooring, painting, replacing decks or patios, and other amenities.
When should I borrow?
An important question to ask is when should you borrow. A 203k loan is still a loan so, like any loan, you borrow when the interest rate is the lowest. Home improvement loans are tied to the federal reserve rate like mortgage rates; the best time to buy a house is a great time to take an FHA 203k loan.
How much can I borrow?
Depending on your home, location, and credit score, you have different limits. For example, a one-unit home allows you to take up to $625,500. The more units in your home, the more money you’re able to borrow.
Is the borrower allowed to make remodels?
If your dream is to fix up your home on your own, you can do this using a 203k loan. However, you cannot use the funds to pay yourself. When you repair issues yourself, you can only charge for the price of materials.
How’s a home appraised?
An appraiser is given a copy of the contractor’s bid documents to authenticate repairs and ensure that remodels are necessary. The appraiser determines the value of the home once construction is completed and are improvements made. Up to 110% of this value can be used for loan purposes.
Can a 203k purchase an HUD-owned property?
Yes, an FHA 203k loan can be used for HUD-owned properties if the house is determined eligible based on the Federal Housing Administration’s requirements. If you've already purchased the home a 203k loan can be obtained up to six months following the purchase, allowing the owner to recuperate from some of the costs of buying the home.
Is there a time limit on renovations?
Most 203k loans do have a term limit. In most cases, the time limit is listed on the loan; it’s impossible to tell you how long the term limit will be as it’s based on the specific repairs you need to be done. For example, if you need a complete reconstruction to make the home habitable, it’ll take much longer than replacing your floors.
