203K Construction Loans
First my apology for not blogging in awhile. Traveling and a bit of sickness from travel has put me bit behind. This weeks blog is about 203K Loans. What are they, are they right for you and can anyone obtain one. To start out, a 203K loan is a construction loan based on the appraised value after the repairs. This type of loan is funded by FHA. Below is a detailed preview of 203K loans.
The 203(k) program can be used in one of three ways with one-to-four unit dwellings:
- To purchase the dwelling and the land and then rehabilitate it
- To purchase the dwelling and move it to another mortgaged property and then rehabilitate it
- To refinance the borrower’s existing mortgage and then rehabilitate the dwelling
FHA 203(k) loans are available in two types:
- The Standard 203(k) (sometimes referred to as the Consultant K or Original K) is intended for more complicated projects that involve structural changes such as room additions, exterior grading and landscaping, or renovation that would prohibit you from occupying the residence. A Standard 203(k) is also used if your project requires engineering or architectural drawings and inspections. Under this program a single family property may be converted into a two-, three- or four-unit dwelling or vice versa so long as the owner occupies one of the units.
- The Streamlined 203(k) is designed for less extensive improvements and for projects that will not exceed a total of $35,000 in renovation and related expenses. This version does not require the use of a consultant, architect, and engineer or as many inspections as the Standard 203(k). As a result, when applicable, the Streamlined 203(k) generally becomes the simpler, less costly option.
Once the home buyer finds a property to purchase, the process of obtaining a loan insured under the provisions of the 203(k) program begins in earnest. The mortgage must be the first lien on the property being improved.
The maximum mortgage amount allowable under the 203(k) program is the lesser of:
- The as-is value or the purchase price of the property before rehabilitation, whichever is less, plus the estimated cost of rehabilitation, or
- 110 percent of the after-improved value of the property.