FHA Loan: 2014 Update on 203k Loans
Basics of FHA 203k Loan
The Federal Housing Administration is a subsidiary of the United States Department of Housing and Urban Development, HUD, and is the federal government agency that is in charge of all FHA loan programs. The Federal Housing Administration does not fund loans. The Federal Housing Administration insures residential mortgage loans to private lenders in order to promote private lenders to fund higher risk mortgage loans to home buyers and will guarantee these FHA approved mortgage lenders against losses in the event if the mortgage loan defaults.
The basics of a FHA 203k Loan is to enable the home buyer to purchase that will not pass FHA housing standards and enable them to purchase a home that is in need of repairs. FHA 203k Loan enables a home buyer to purchase a fixer upper and will fund not only the cost of the home but also the cost of the repairs all in one loan. FHA 203k Loans also enables a homeowner who has a home that need rehabilitation to refinace their current home and get the funds to remodel their homes. Room additions, basement and attic remodeling, bathroom and kitchen remodeling, new roofing, new windows, new gutters, electrical systems, plumbing systems, HVAC systems, appliances, and other major repairs can be funded with 203k Loans. All 203k Loan mortgage loan borrowers need to be owner occupant and one to four unit residential properties qualify for FHA 203k Loan programs.
FHA 203k Streamline Loan Program
There are two different types of FHA 203k Loan programs: FHA 203k Streamline and FHA 203k Standard. The FHA 203k Streamline program is a simple remodeling loan program where the maximum amount that FHA will allow is $35,000. No structural changes can be done with the Streamline 203k Loan program. No room additions or changes of structural walls are allowed. You can remodel your basement, attic, kitchen, and bathrooms with the 203k Streamline Loan program. New windows, new roof, new flooring, new millwork, new drywall, electrical, plumbing, and HVAC systems can be
done with the 203k streamline loan program.
Standard FHA 203k Loan program
The standard FHA 203k Loan program are for home buyers who need a full blown rehab. You are allowed to do room additions, structural changes, second story addditons, and the cost of construction is unlimited up to the maximum FHA loan amount in the county your property is located. For example, if the FHA loan maximum loan amount for a particular county is $365,700 ( Cook, Lake, Will, Dupage Counties in Illinois ) then you can borrow up to that loan amount for both the purchase and construction of the property. If you were to purchase a fixer upper for $100,000 in Cook County, Illinois and the that county maximum FHA lending limit is $365,700, your construction budget will be a maximum of $265,700 ( $100,00 cost of home plus $265,700 yields the maximum $365,700 FHA lending limit in Cook County, Illinois).
Eligibility for FHA 203k Loan programs
Not all mortgage lenders offer FHA 203k Loan programs even though they may offer regular FHA loans to their mortgage applicants. You need a 3.5% down payment for the after repair value of the property. For example, if the cost of the home purchase is $100,000 and the cost of construction is $100,000, you would need 3.5% of the after repair value of the property which is 3.5% of the $200,000 which is $7,000.
FHA 203k Loan mortgage rates are normally higher than regular FHA loan programs. It also takes longer to close a FHA 203k Loan compared to a regular FHA loan. There are more costs incurred with a FHA 203k Loan than there is with the regular FHA loan. Costs for home inspection and permits can be quite costly, however, these costs can be rolled into the FHA 203k loan.
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