What Is The Purpose Of FHA 203k Loans?
The 203(k) is a unique loan that lets buyers or existing homeowners take that fixer-upper OR older outdated home and turn it into their “DREAM HOME” by financing OR re-financing that 1-to-4 family dwelling with one loan that includes both the purchase cost AND the repair or renovation costs in one loan AND allows them to do the renovation, repairs, or other improvements AFTER they close.
The 203(k) loan is an FHA insured mortgage used for the purchase or refinancing of a 1-4 unit residential property in need of a minimum of $5,000 in repairs or improvements All in one closing. The loan is fully funded, disbursed at closing and can be insured BEFORE the construction or renovation is completed
After the loan is closed, the funds required for construction are deposited into a construction escrow account, and are disbursed as the construction progresses.
For most conventional mortgage loans, homebuyers buying properties in need of major repair OR even minor would have to pay for those repairs, renovation or upgrades out-of-pocket UPFRONT AND if any of those improvements were a condition of the financing because of requirements in an appraisal or a home inspection, such as: too many roofs, an old 60 amp fuse box, termite damage or a fire damaged property, THEN those repairs would have to be made PRIOR to the loan closing.
Think about all the foreclosures and short sales or run down properties that are listed on the market at a discount to cash buyers OR non-profits due to the amount of rehab or renovation work necessary just to make the properties move-in ready.
The FHA 203(k) Loan fills that gap and helps a buyer who will be the primary resident, (not an investor landlord), upgrade and improve that property and maintain the integrity of the values in the neighborhood.
If you’re searching for a home to buy and you can’t find just the right home within your budget in the right neighborhood that has the carpet, tile, kitchen cabinets, granite counter tops and paint that you want, then the FHA 203(k) Loan is the perfect solution you need.
If you already own a home that’s older, worn, or if major systems like the roof, electric system, heating or air conditioning need expensive replacement OR you want to remodel your kitchen, bath, add a room ….. the FHA 203(k) is for you.
That’s why the FHA 203(k) loan is often referred to as “FHA’s Dream Loan”.