Home buyers are drawn to the charm of an older home. However, these charming homes often need quite a few repairs, including foundation work. Especially for young, first-time home buyers, finding a lender that will give you a mortgage and fund the renovation work is nearly impossible. As a result, many settle for buying another home that doesn’t need costly repairs. However, the Federal Housing Administration (FHA) has a loan that meets the needs of this niche. A 203K loan from the FHA can make buying your dream home possible even though it needs foundation repair work done. Here’s how it works.
What’s a 203K Loan?
A 203K loan from the FHA is specifically designed to encourage home buyers to purchase homes that need renovation. The loan bundles the purchase of the home with the renovation costs into one mortgage loan. 203K loans can also be used by persons that already own a home and need funding for needed renovations. The FHA has two loans, a traditional 203K and a streamlined 203K. The streamlined loan is for homes that need less extreme repairs. Kitchen renovations, painting, new appliances, weatherization, and new windows and doors can be included in this loan. However, if your dream home needs structural renovations, including foundation repair, the traditional 203K is what would be needed. There are two ways the FHA determines the maximum amount you can qualify for. They can simply add the current value of the home to the estimated cost of repairs or buyers can apply for a loan that is 110 percent of the estimated value of the property once the repairs are complete.
203K and Foundation Repair
Imagine finding the perfect, charming home in an established, quiet neighborhood. However, as you look at the house you notice cracks in the walls and ceilings, windows and doors that do not close properly and other indications of foundation issues. Your fears are confirmed after an inspection and your lender denies funding. Finding out that a home has foundation issues is a frightening concept. It’s not surprising that many buyers are scared off or lenders simply refuse to give them a mortgage. However, don’t pass on a great deal on your dream home. Foundation problems can be fixed. Use the cost to negotiate a lower selling price. Then, apply for your 203K loan to fund your foundation repair and any other renovations you want to make.
FHA loans are often attractive because they have low interest rates and down payments are minimal, around 3.5 percent. Credit score requirements are less strict than with traditional loans, requiring a score of 640 or more. On the downside, all FHA loans require mortgage insurance. However, just this past January the FHA lowered the mortgage insurance rate to 0.85 percent.
FHA loans require patience and a lot of paperwork. In addition to an accurate appraisal of the home in its current state, you’ll need to get an estimate of the value of the home once the repairs have been made and a detailed proposal from a qualified and insured contractor that outlines the specific renovation costs. Additionally, the FHA gives homeowners a time limit. The renovation work must begin within 30 days of closing and complete within six months. However, the property can not be vacant for more than 30 days. As a result, homeowners need trustworthy and reliable experts. Perma Pier professionals understand 203K guidelines. Our experts are well-acquainted with the dynamics between buyers, sellers and realtors. We have many years of experience working with buyers using FHA, VA and HUD for their financing. Trust us with your dream home. Contact us to find out more.