Not all homes are ready for move in as soon as they are purchased. In fact, there are some homes that still require a lot of work. Whether a home requires a little bit of work or a whole remodel, there are some ways that purchasers can accomplish both. One of the common ways today is with a FHA 203k home loan.
What Are the Basics of the FHA 203k Loan?
An FHA 203k loan is a loan that allows purchasers to get one loan for both the purchase of a property as well as the home improvement component of the home. Additionally, the loans can be adjusted for home improvements. The loan is guaranteed by the FHA which is a reason why lenders like this loan. This also means that it is easier for a purchaser to get an approval because it is an FHA loan and there may even be a lower interest rate associated with it. It is a program that is designed for homes that are almost perfect in terms of location and potential but need some improvements and work done to the property to make it ideal.
For some homes, without the repairs, the home may not be suitable for living conditions which could result in lenders denying any mortgage applications on the home. However, with a 203k loan, it is possible to get the work done to make the property a home, off the market, and a good part of the community again. That is not the only thing that can be rolled up into the cost of the loan either. If there is a need for temporary housing as a result of the construction, then there are some cases where the cost of rent or an existing mortgage can be added to the mortgage for up to six months.
The Details of the Loan
The FHA 203k loan is a loan that can be used by individual purchasers but not by investors for a property. It can also be utilized by nonprofit organizations. It is for properties that have one to four units and can also be used for condos and townhomes, like those in Streeterville, where purchasers looking to make repairs within the unit. Any work that is built into the loan must be completed within six months of the beginning of the loan. The money for the repairs is actually placed in an escrow account and then paid to the contractors as the work is completed which makes working with reputable contractors who are familiar with these types of loans an essential component.
One of the benefits of this type of loan is that the borrower does not need perfect credit in order to qualify. Buyers looking to purchase a home, may want to consider this option when reviewing financing avenues. However, it is important to ensure that the borrower has enough of an income to cover the payments. The debt to income ratio that the lenders tend to look for is 31/43. The minimum loan amount is $5,000 and there are maximums set forth by the FHA based on the area. The interest rates will also vary on credit rating and the current rates of the market. However, as a rule of thumb, borrowers can expect to pay around 1 percent more than they would for a standard loan.
The FHA 203k loan is a good option but it may not always be the best option on the market. It is always best to explore all options based on the home type and the proposed repairs before applying for a specific loan.
Ted Guarnero, REALTOR® is a full-time real estate agent with over 1000 homes sold and $400 million in sales. Working with Compass real estate offering professional and effective real estate services to help you succeed in the local real estate market. Visit www.seeChicagorealestate.com for information on downtown Chicago real estate and to get in touch with an expert in the Chicago real estate market. Before you hire your next Realtor call Ted Guarnero 855-See-Chicago, it's on the House !