The FHA 203(k) loan program is an ideal platform to receive mortgages for distressed homes. If you have a new home in mind, but it requires a great deal of renovation, a 203(k) mortgage would be ideal for you. First, let’s discuss what the term means, and then how it would help you to save money and a great deal of time and effort.
What is the FHA 203(k) Loan?
The FHA 203(k) loan program enables you to purchase, modernize and remodel real estate in poor condition with the one loan. Such mortgage loans are mainly, but not exclusively, intended for foreclosed and distressed properties. They are designed to enable home buyers to renovate properties in poor condition with just one finance application.
Prior to this, you would have had to apply for a mortgage to purchase the property. Having made the purchase, you would then have to apply for a further loan for the repairs and improvements. Under the terms of the FHA 203(k) mortgage loan program, you can be offered one fixed or adjustable rate mortgage to cover the cost of the purchase and the improvements.
Problems With Distressed Properties
Mortgages for distressed homes are generally no different to those for well maintained homes. There are two problems with this:
a) Most people would rather purchase a home that they can immediately live in without the need for extra work, and
b) Most people would rather not be faced with the cost of repairs or renovation immediately after paying their deposit and closing fees.
Even if you came across a distressed property at an excellent price, could you afford the costs of the purchase and then the costs of renovation on top of that? Such costs can reach tens of thousands of dollars.
Because of this, it became apparent that many such properties were lying unoccupied and simply rotting away. The 4203(k) loan program enables buyers to amalgamate the estimated cost of repairs and renovation into the original mortgage loan.
203(k) Loan Program Qualification Guidelines
This type of mortgage seems to offer a good deal, and a fabulous opportunity for you to purchase a distressed home at a low price and include the modernization costs into your mortgage loan. What’s the catch?
There is no catch, but you must qualify. The property must be occupied by the owner, so you cannot get such a mortgage for a second or holiday home. It must also have been standing for at least one year. You can use the mortgage to add extra rooms or family units, and can even use it to rebuild from existing foundations.
In order to qualify for a 203(k) loan program, you must also qualify under the FHA guidelines. In other words, if you cannot get an FHA loan, then you cannot get a 203(k) mortgage. Full guidelines are available on the U.S. Department of Housing and Urban Development (HUD) website.