Whether you are trying to buy your first home or want to buy a fixer-upper property, finding financing can be daunting. The FHA is a reliable source for insured loans and backed by the federal government. Primary Residential Mortgage, Inc. notes that under the FHA 203K loan program, buyers can use the money to buy a damaged home and repair it. This money can be used to do repairs on the home you currently live in. Here are a few facts about this type of loan:
· Relaxed lending standards
· Available to low-income borrowers with low credit scores
· Down payments can be as low as 3.5%
· 20% of the funds are held in a contingency reserve so that the remodeling can be done
· It accounts for cost overruns
· Provides for up to 6 months of a mortgage payment, enabling owners to live in another apartment while the home is being renovated
What repairs qualify under this loan program?
There are two distinct loans offered under the FHA 203K program. The first is a standard 203K which can be used for structural work requiring repairs like a new garage, bathroom, kitchen or even landscaping. The second one is offered for work related to updating appliances, new roof, appliances with energy star ratings and so on. It can also be used to update plumbing and electrical cables, new siding for the exterior, new plumbing, adding another story to a house and so on. The changes/improvements must be a permanent addition to the property.
The amount disbursed under an FHA 203K loan program will depend on the location of the property and type. The highest amount that a borrower is eligible for is 115% of the median price of a home in the area. Loan amounts are limited to $679,650 at the maximum. A borrower’s age and existing interest rates are also considered.
Keep in mind that you, as a borrower, will have to get mortgage insurance. This is a one-time payment and an upfront premium which amounts to 1.75 of the loan amount. It must be paid at the time of closing. To get an FHA loan, you must pay mortgage insurance for the duration of the loan. The biggest benefit of getting this loan is that borrowers can do the much-needed repairs and make a home habitable. Do some research to find out if you qualify for such a loan. Borrowers must include a proposal of expected changes, costs and pictures so that the application can be processed.