Are you interested in purchasing a fixer-upper home? If you know that the home you want to buy needs repairs and you are worried that you can not get enough money back from your mortgage to make these repairs, then you should know about the Section 203(k) program offered by the FHA. Through this program, you can purchase a home and get the money you need to fix up the home financed into the mortgage.
For instance, if you want to purchase a home that is currently valued at $100,000 but it needs $20,000 worth of repairs, many mortgage companies will not lend you more than the appraisal value of the home. With the FHA 203(k) program, you can borrow the money to purchase the home and fix it up.
The FHA and HUD do not loan you the money directly. Instead, they guarantee your loan with one of their approved lenders, which makes it easier to get a home loan because the lender has the assurance from the FHA that they will recapture some of their money in case you default on the loan.
To find an FHA- and HUD-approved lender, check out HUD-approved lenders. Submit the information regarding what state and area you live in and you will find a list of lenders in your vicinity.
You can use the program to purchase single family homes, up to four-unit buildings as long as you live in one of them, and condominiums. There are certain restrictions for condominium repairs that you should consult your FHA-approved lender about before purchasing.
Yes. The FHA requires that you occupy the property you purchase.
Yes. The FHA allows you to use the rehabilitation money from the loan to convert a single-family home into up to a four-unit home. The FHA also allows you to use the loan to move existing homes onto a new site if necessary.
Yes, under certain circumstances. If you need to tear down the existing home and re-build a new home, then you can use the 203(k) loan money as long as you are able to use some of the existing foundation.
Yes. The FHA requires that you meet current building standards for energy efficiency. If you are rehabilitating a home, these standards include:
You can borrow up to 110% of the value of the home AFTER the repairs and rehabilitation of the home. The FHA will do a current value appraisal of the home in order to see what it is worth now. Then they will consider all of the rehabilitation you plan to do and conduct a second appraisal for what the home will be worth after the repairs have been made to the home. If you plan to install solar energy systems as part of your rehabilitation, the FHA will insure up to 20% more of your mortgage values, which means your lender will loan you more for your repairs and it will be easier to qualify for the loan.
Yes. The FHA requires you to borrow at least $5,000 for repairs to the home in order to use the 203(k) program.
The FHA requires that you make your home more energy efficient, but optional repairs that you can finance into your loan include:
When you get a FHA 203(k) loan, you sign an agreement that specifies what time frame you have to complete the repairs. You have to begin the rehabilitation within 30 days of signing the agreement and receiving the money. The rehabilitation must be completed within 6 months and any pause in the work can not last for more than 30 days straight. This means that if you have different contractors working on different parts of your rehabilitation plan, you need to make sure that there is not more than a 30-day stretch between the end and start of each contractor.
If you foresee a problem with the agreement, then contact your lender immediately. They may be able to help you with a solution. If you break your contract, then you will not be able to access the escrow account with your home rehabilitation money. This money will be held and, if unused, it may go back into your mortgage loan to lower your owed balance. Because of this, you want to make sure and be ready to have the work done before you sign the agreement.
No. You need to find a contractor that can give you an accurate price before you take out your loan. Once you have the loan, you cannot borrow more money. Discuss this with your contractor when you have the estimate done so that they know you can not afford to go over the estimated cost.
No. You do have to make the mortgage payments, but the FHA allows you to include the cost of your first 6 months of mortgage payments into the loan so that you do not have to try and bear the burden of paying your new mortgage and rent to live somewhere while you home is being rehabilitated.