Great Loan for Buying a Home that Needs Repairs

FHA 203k home loan includes repairs/improvements in one mortgage

Most mortgages won’t allow you to add repairs and improvements to the purchase loan. They require you to make repairs first before you get the mortgage. This is difficult because the repairs cannot be completed until you have purchased the home. For these other programs, most require the borrower has experience rehabing homes, or require a significant down payment.

Whether you purchase or refinance a property, HUD's FHA 203k program allows the purchase or refinance of a property to include the cost of the repairs and improvements. FHA 203k is only available to people occupying the home.

The 3.5% down payment includes combination of home and home repair costs of the property.

FHA 203k Steps:

* Find a home that needs repairs.

* Realtor runs a feasibility analysis

* Complete purchase agreement contract that includes buyer is seeking a FHA 203k loan. The purchase agreement is contingent on loan approval based on required repairs by FHA or lender.

* Homebuyer chooses a FHA-approved 203(k) lender

* Arrange for detailed proposal showing the scope of work to be done, including a detailed cost estimate on each repair or improvement of the project.

* Appraisal is performed to determine the value of the property after renovation. The Borrower can finance up to 110% of the after completed value( borrower must have 3.5% of the original purchase price invested in the transaction.

* Borrower passes lender's credit-worthiness test, the loan closes for amount that will cover the purchase or refinance cost of the property, the rehab costs and the allowable closing costs. The amount of the loan will also include a contingency reserve of 10% to 20% of the total rehab costs and is used to cover any extra work not included in the original proposal.

* At closing, the seller of the property is paid off and the remaining funds are put in an escrow account to pay for the repairs and improvements during the rehabilitation period.

* The mortgage payments and remodeling begin after the loan closes. The borrower can decide to have up to six mortgage payments (PITI) put into the cost of rehabilitation if the property is not going to be occupied during construction, but it cannot exceed the length of time it is estimated to complete the rehab.

* Escrowed funds are released to the contractor during construction through a series of draw requests for completed work. To ensure completion of the job, 10% of each draw is held back; this money is paid after the lender determines their will be no liens on the property. Click here to go back to FHA203k Rehab Loan page. 

Call Peter Boyle 612.701.6816 NMLS License # 218261 

 Serving Minneapolis, St Paul and Surrounding Areas.