Do you want to buy a home that is a fixer upper, but don’t have the cash to fix it up? Is the home you are looking to buy a foreclosure or in a state of disrepair where it won’t qualify for traditional financing?
Well this is possible with the 203K Housing Loan.
The 203K loan is a loan designed for homes that need work. It was designed for loans that won’t qualify for FHA, because they need major repairs like a roof. This loan is still an FHA backed loan.
In order to qualify there needs to be licensed contractors involved, who can verify that they will do the repairs once the home is purchased. The minimum portion of the loan for the draws is $5,000. The total loan is still under the FHA limits, so $271,500 in most Utah areas. The contractor can take four draws from the repair money to pay for the improvements. Before each draw, an inspector must go out and verify that the previous work was done.
This is for repairs, not for luxury items or additions. It also doesn’t work for homes that have never been occupied. Some landscaping items can be used, but only if it improves value. Appliances can be added, but only after at least $5,000 goes towards the house.
Because the homes sometimes can’t be occupied while the repairs are made, The 203K loan can have payments of up to six months added to the loan while the owner has to live somewhere else.
The loan amount can be 100% of what your cost to fix it up will actually cost, or 96.5% of the repaired appraised value, the normal FHA limit.
The cost of the loan (origination fee) is 1%, plus 1.5% of the Rehabilitation cost, with a minimum of $350. The mortgage interest rate is just two discount points higher than the regular FHA loan.
