Most people are familiar with using an FHA loan to buy a home. If your home and income qualify, it can be one of the most competitive financing products out there.
However, what if you find a beautiful piece of coal that just needs some polishing to become a diamond? It takes cash to mine diamonds and you probably don't want to plunk down everything out of pocket. That's where the FHA 203k loan program comes in handy!
There are other rehab loans on the market but generally they require two loans with relatively high interest rates that can eventually be refinanced at a lower rate when the property is brought back to good condition. For many buyers, this financing is prohibitive because it has very stringent borrower requirements.
Like other FHA loans, HUD requires the property to be single family which in the government's eyes actually means 1-4 units. Generally speaking, average homes and many condos will qualify for the 203k program -- even moving a home to a new lot is sometimes eligible!
Here are three common ways to use a 203k loan:
- To demolish a home or move a home to a new lot.
- To purchase a home and roll rehab costs into the loan.
- To refinance an existing loan and get more money out to finance repairs.
Officially, you can't finance "luxury items" with loan proceeds. You can finance all costs of necessary improvements though, including but not limited to additions, painting and trim work, decks, and energy related improvements.
Overall, the FHA's 203k loan program is a great way to buy a fixer upper, with minimum cash out of pocket, and earn some sweet equity buy doing repairs on your own. I highly recommend looking into it if you're considering purchasing a home that needs more than a few repairs.
This guest post was written by Brandon Laughridge of Mortgage Loan Place. MLP specializes in educating consumers about every type of home loan. Check out the Mortgage Loan blog for up-to-date commentary on the mortgage market.
Photo Credits: Hammer51012
Originally posted 2009-06-24 19:35:47. Republished by Blog Post Promoter
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