Home Improvement Loan

FHA 203k loan program

Do you ever look at a damaged house and think to yourself it can turn into a beautiful home if only you modernize and renovate a few areas? It’s normal for anyone to want to live in a house they deem aesthetically pleasing. But the cost of all it takes to make these things a reality can be crushing. When you become aware of how much it will take to re-construct, you often also recognize that the budget needed is not within your financial means.


Thankfully, the FHA 203K loan exists. To begin, this loan type is insured by the federal government and is extended to borrowers who want to purchase a blemished house and have it repaired. That said, a borrower may choose either the Streamline 203k loan or the Standard 203k loan.


The maximum loan amount for Streamline 203k is $35,000 and requires that the house be liveable all throughout the renovation duration. On the other hand, the Standard 203k has no capped amount, and may allow for the home to be uninhabitable due to construction for a set time.


The greatest difference between both FHA mortgage loans is that Standard 203k calls for more drastic construction work such as putting up new rooms, improving architectural damage, or restoring structural compositions that may take more than three months; whereas Streamline 203k involves mostly subsidiary repairs and replacements.


It is also important to note that with Streamline 203k, the rates of your contractor can be arranged in two chapters: half of the overall sum at the beginning of a project, and the other half when all work is done. The setup for Standard 203k is another story, as a designated consultant oversees construction and is in charge of making payments during the conclusion of every project.


Both FHA 203k loans do not include improvements considered to be luxurious such as adding swimming pools, home cinemas, and tennis courts.


The most significant advantage of these loans is the likelihood of buying a damaged home that calls for improvements you might not be able to afford right away. Down payments and interest rates with FHA loans in general are also very minimal compared to commercial loans. However, it is still important to note that rates and discounts vary by lender.


A disadvantage to this is that not all houses are qualified and there are elaborate caps on the funds that are lent. Applying for these types of loans can be challenging to many, too, as you may need to hire a third party architect or engineer to arrange and present the proposal and costs of the work you want done. An upfront mortgage insurance premium (UFMIP) is also collected on a monthly basis.

To reiterate, FHA 203K loans are not merely loans for home improvement. They are also loans for home-purchasing, so anyone looking into buying property can apply.


It is also worth noting that the FHA does not give out money themselves. Rather, they insure mortgage loans extended by FHA approved lenders. These types of loans are most popular among those whose income capacities may not be extensive. People with unimpressive credit ratings are also given a fair chance.


Before reaching out to an FHA affiliate, it is advisable for one to determine their credit report and credit score. The most prevalent way of confirming these is by reviewing your FICO score that may range from 300 to 850. Anyone with a credit score of 580 or better will need to secure only 3.5% of a down payment in order for them to purchase a home.


Anyone whose credit score is less than the aforementioned may still qualify for an FHA loan but will have to secure a 10% down payment instead.


On the contrary, it is still wise to have established savings available before applying for loans as these involve plenty of upfront fees. Considering your current financial footing, determine how much you’re able to contribute to mortgage payments on a monthly basis.


Once you’re decided, contacting an FHA-approved lender should be next on your list. Utilizing the search tool in hud.gov is one of the easiest means to connecting with authorized personnel.  If you do not have anyone’s name in mind, type your city and state in the box asking for a lender, and that should show you a list of FHA affiliates nearby.

by: Lorenza