FHA 203k Loans

If you are planning to buy a fixer-upper, you may have already found that it can be very tough to secure financing for a home that needs work. This is because lenders do not want to make a loan on an uninhabitable property, and many government-backed loans require the home to be in livable condition.

One of the best ways to buy a fixer-upper is through an FHA 203k loan. This unique loan is designed to borrow for the improvement and purchase of a home with a single mortgage. FHA 203k home loans are meant to encourage lenders to offer financing for properties that may seem risky in an attempt to revitalize neighborhoods.

Does My Home Qualify?

It is not just the borrower who must qualify for an FHA 203k loan; the property must also qualify under the program. You must plan to live in the property as your primary residence. If you get the regular 203k loan, the home may need structural repairs, but only non-structural repairs are allowed with the streamlined version.

The following can qualify for a 203k repair loan:

• Single-family and 2, 3 and 4-family properties
• Condos that qualify for an FHA loan
• Existing construction that is a minimum of 1 year old
• Mixed use properties if the home portion is all that requires repairs
• Homes that need to be moved to a new foundation
• Tear downs, as long as a portion of the foundation remains

Pros and Cons of a 203k Loan

The FHA 203k mortgage is usually the best option if you want to buy a home that needs work, as you can finance both the purchase and repairs into a single loan. This loan option typically has competitive rates as well as a low down payment requirement.

The main downside to the program is not all repairs and properties qualify. Not all lenders offer 203k home loans, either, and you will find the loan approval process is more complicated. This is because you must give a detailed proposal of work, show how much the home will be worth, and complete all repairs within six months.