The FHA 203k loan in summary enables homebuyers and homeowners to finance both the purchase (or refinancing) of a house and the cost of its rehabilitation through a single mortgage or to finance the rehabilitation of their existing home. Since 2008 the mortgage industry has survived a major rehabilitation of its own. The meltdown of the mortgage industry was due to many factors and loan products no longer available, such as no doc mortgage loans or stated income mortgage loan programs. Construction loans and unsecured loans are now almost impossible to get. Prior to the 2008 Mortgage and Real Estate Meltdown financing was easy and streamlined and banks and lenders were eager to lend. Following the Mortgage and Real Estate fallout lending became much tougher, prior to a homeowner could walk into their bank of choice of whom they had a relationship and get a loan to remodel their kitchen or bathroom or for home improvements. Home improvements due not come cheap so these loans were larger amounts than you would expect. No longer is this possible and homeowners who need a second mortgage or home equity line of credit (HELOC) need equity in their homes and stellar credit. Most banks will require at least a 700 FICO credit score before they even entertain the possibility of a new loan. Besides great credit to get a second mortgage or home equity line of credit a homeowner will need substantial equity in their homes because the maximum CLTV that most banks will allow is between 85% CMLTV and 90% CLTV. However HUD now sponsors a positive solution for homeowners who need to renovate their homes and in need of construction money. With a FHA 203k Loan a homeowner can refinance the cost of major renovations to their homes to find construction funds to accomplish this project.
A FHA 203k loan fills a unique and important need for homebuyers. When buying or refinancing a house that needs repair or modernization, homebuyers usually have to follow a complicated and costly process. Interim acquisition and improvement loans, often have high interest rates, short repayment terms and a balloon payment. A FHA 203k offers a solution that helps both borrowers and lenders, insuring a single, long term, fixed or adjustable rate loan that covers both the acquisition and rehabilitation of a property. A FHA 203k loan saves the borrower time and money, A FHA 203k protects the lender by allowing them to have the loan insured even before the condition and value of the property may offer adequate security. A FHA 203k loan will fund the total construction loan amount to do renovations on a owner occupied one to four unit property and also fund the acquisition of the property. Refinancing with a FHA 203k Loan, the FHA 203k mortgage lender will pay off the existing mortgage loan of the homeowner and fund the construction loan in all in one mortgage program. Only FHA approved banks and FHA approved lenders can fund an FHA 203k loan. FHA 203k loans are insured by the Federal Housing Administration in the event the mortgage borrower defaults on their FHA Loan. FHA is not a mortgage lender, they are a government enterprise who’s primary role is to insure FHA Loans that are originated and funded by FHA mortgage lenders in the event of homeowners default on their FHA Loans. FHA only requires 3.5 % down payment on a home purchase increasing the risk to the lender however if a lender were have to foreclose on a FHA loan the loss will be covered by the Federal Housing Administration.
A FHA 203k loan covers the purchase or refinancing and rehabilitation of a home that is at least one year old. A portion of the proceeds is used to pay the seller, or, if a refinance, to pay off the existing mortgage, and the remaining funds are placed in an escrow account and released as rehabilitation is completed. The cost of the rehabilitation must be at least $5000 but the total value of the property must still fall within the FHA mortgage limit for the area. The value of the property is determined by either: Whichever is less.
The range of rehabilitation covered by a FHA 203k loan range from relatively minor (must exceed $5000) to major reconstruction is eligible. However a home that has been demolished or will be razed as part of rehabilitation require the existing foundation system remains in place A FHA 203k loan can also finance the rehabilitation property that also has non-residential uses, they can cover the conversion of a property to a one- to four- unit structure. Some of the types of FHA 203k financing include:
*** All properties financed under the FHA 203k loan program must meet certain basic endure efficiency and structural standards.
The first type of FHA 203k Loan is the FHA Streamline 203k Loan where the maximum construction amount is capped at $35,000. You cannot do any structural changes or room additions with a FHA 203k Streamline Loan, however you can do other improvements such as basement remodeling, attic remodeling, new windows, new siding, new roofing, new kitchens, new bathroom, new HVAC systems and new appliances. The second type of FHA 2o3k Loan is a full FHA 203k where you can do everything that you can with a Streamline FHA 203k loan plus do structural changes, room additions, and any other type of repairs including a total renovation.
Whether a borrower currently has a USDA Loan, VA Loan, Conventional Loan or even a current FHA Loan a FHA 203k Loan can be done. A borrower and FHA approved bank or Mortgage lender must follow all FHA Guidelines to include meeting the minimum credit score requirements and debt to net income requirements. Most lenders have FHA Lender Overlays, an overlay is an additional more stringent guideline above the FHA minimum guideline. For example, most FHA 203k mortgage lenders will require a 640 credit score and will have debt to income ration cap of no greater than 43% DTI. Many mortgage lenders will want n collection accounts or charge off accounts on FHA 203k mortgage event though FHA does not require that you pay off outstanding collection accounts or charge off accounts. The GREAT news is the Larry Stepp Team at Gustan Cho Associates do not have any mortgage overlays on FHA Loans and minimal overlays on FHA 203k Loans.
The Larry Stepp Team at Gustan Cho Associates is available 7 days a week, weekends and holidays.
Larry Stepp 407-922-4755 LarryS.HomesNetwork@gmail.com