What is an FHA 203(k) Loan?
FHA 203(k) loan will cover are home remodeling, plumbing, painting, heat and air conditioning systems, window and door replacements, and so on.
FHA 203(k) loan
An FHA 203(k) is a type of government-insured mortgage that gives the borrower the chance to take a dual-purpose loan namely: for buying a home and for repairing the same. Also called a Rehab Loan or FHA Construction Loan, this mortgage addresses a common problem in real estate. Many times, there are homes that need repairs and neither the owner nor the buyer has enough money for this purpose. Lenders are often unwilling to approve mortgage loans for such kinds of loans. However, when there is a construction loan, the lender is able to track and verify repairs.
The loan is targeted at rehabilitation or repairs to a home that will become the mortgagor’s primary residence. The essence of the loan is to prevent the need for a dual application for the loan where one will be for the home purchase and the other for the renovation of the same. It also removes the risk of one of the applications being granted and the other refused. In such cases, it is difficult to reap the benefits of the approved loan.
FHA 203(k) loan for low earning people
The FHA 203(k) loan is primarily for families earning low to moderate incomes for the purchase of homes in dire need of repairs, especially those situated in old communities.
The amount that will be borrowed will include the cost of repairs, materials to be bought, labor fees, and so on, together with the purchase price. It must be noted that only people who want to make the home their primary dwelling place are entitled to the loan. This means that estate developers or other real estate agents are not the loan target.
Some of the repairs that an FHA 203(k) loan will cover are home remodeling, plumbing, painting, heat and air conditioning systems, window and door replacements, and so on. They are mainly necessities and not for the renovation of items that are considered luxurious such as a pool.
Types of FHA 203(k) loans:
There are two types of FHA 203(k) loans that are available namely:
- streamline 203(k)
- standard 203(k)
The streamline 203(k) is also called limited 203(k). It is available for homes that do not require a lot of work or repairs. For instance, it cannot be used for structural repairs to a home. On the other hand, the standard 203(k) is used for extensive and structural works that a home needs. Unlike the streamline 203(k), it has no capped repair cost
Taking an FHA 203(k) loan is not without its costs. The prospective borrower has to weigh his options and make a decision.