Use The FHA 203(k) Rehabilitation Mortgage And Become A Homeowner!

Purchasing a home is considered an essential part of the American Dream, even though many believe it is not obtainable for them. However, this does not have to be the case thanks to the FHA 203(k) Rehabilitation Mortgage Program. As part of the US Department of Housing and Urban Development, the Federal Housing Administration assists potential homeowners just like you to make their dream a reality!

WHAT EXACTLY IS THE FHA 203(K)?

Since it’s inception in 1934, the officials at the FHA has been helping people to obtain the financing necessary for citizens to finance their home. By insuring loans for qualified applicants, the government program provides greater protection for the lender. In turn, lenders are more likely to provide loans to folks who would otherwise not qualify, or extend more credit to those who do.

With the 203(k) program, the aim is to boost the number of homeowners in the country. Additionally, it raises restoration funds for neighborhoods that are falling into a state of disrepair but with some TLC can be returned to a more attractive part of town.

HOW IS THE 203(K) PROGRAM DIFFERENT FROM A TRADITIONAL MORTGAGE?

Though there is nothing wrong with traditional mortgages, they have significant drawbacks for those with lower financing abilities. The benefits to the 203(k) include:

* Property does not have to meet minimum standards at closing, giving you six months to make the dwelling livable. With a traditional mortgage, it must be move-in ready on closing day.

* The transaction allows for you to consolidate your home loan and rehabilitation loans. With the home renovations included in the deal, purchasing fixer-uppers in need of more extensive repairs is significantly easier for those who don’t have the funds to make the repairs immediately.

* The home value is based on post-renovation whereas the property value with a traditional mortgage will not provide sufficient loan security.

WHAT IF I ONLY NEED A FEW COSMETIC UPGRADES TO THE HOME?

While some fixer-uppers need extensive work, others don’t require such extensive attention before becoming a viable residence. A Streamlined, or Limited 203(k) Loan might better suit your needs. Unlike a traditional home equity loan which requires not only sufficient equity, but the ability to afford another loan payment, the Streamlined 203(k) is figured into the original loan balance.

The requirements for this loan are different, as well as the projects covered under the loan. Several home repairs and improvements are covered with this smaller loan, including major appliances and HVAC systems. Additional approved upgrades include, but are not limited to, the following:

Electrical, plumbing, septic and water systems

New flooring, interior and exterior painting

Windows, doors and minor remodeling to update the kitchen and bathrooms

Basement waterproofing, weather-stripping and insulation

HOW DOES THE FHA 203(K) WORK?

Specific steps have been outlined by HUD in order to obtain the loan. They are:

Find An Appropriate Property

You must have a specific piece of residential property that you want to purchase. It should require repairs that make it unlivable in its current condition. When you submit an offer to purchase the home, the purchase and sale contract needs to clearly state that the offer is contingent on your approval for an FHA 203(k) loan approval.

Submit Your Loan Application To An Approved Lender

Once you have submitted the offer, you need to apply for a loan. HUD has a list of qualified lenders who are approved to offer a loan through the 203(k) process; use it to determine which institution you are going to submit your application to. When you do so, you will need to have an itemized list of repairs, complete with an accurate cost for each of them. Make certain that you have an accurate assessment, not only of the exact repairs you need, but also the amount of money that you will need to have them completed.

Meet Lender Requirements

Although the loan is insured by HUD, the lending institution can exact their own requirements in order to make the loan. Probably proofs include:

Appropriate debt-to-income ratio

Proof of income

Minimum credit score

Keep in mind that each lending institution might have differing requirements within these categories. Additionally, one or all of them might ask for other information.

Time To Close The Deal!

If you are approved and your offer accepted, a closing date will be set. At that time, the money left after paying the seller will be placed in escrow. Generally, the lender controls these funds, dispersing them to contractors based upon the agreement at the time of closing.

Complete The Rehabilitation Work

You must commence working on the house within 30 days and have it completed in six months. Depending on the dispersion plan agreed upon during the sale, the contractors will be paid for their work as the work progresses. An inspection and appropriate documentation might be required in order for the contractors to receive payment.

Once the work is finished, the remaining funds will go back to the lender. Then, you can move in and begin enjoying your upgraded new home!

CAN I USE THE 203(K) IF I FILED FOR CHAPTER 13 BANKRUPTCY?

In most cases, yes! According to HUD, those who have met the requirements of their bankruptcy agreement for more than a year and have obtained permission from the courts are candidates for this mortgage program.

As you can see, the Federal Housing Administration has developed a fantastic program to benefit individuals and communities. Whether you are a homeowner in need of the Limited 203(k) to update their home or a potential homeowner interested in purchasing a fixer-upper through the regular program, you owe it to yourself to learn more about this program and the homes you might want to buy. This is a great opportunity to claim a bit of the Dream for yourself and start enjoying the benefits of owning your own place!

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