Today we talk about what is an FHA 203k loan and what are the Federal Housing Administration or FHA 203k loan requirements & eligibility.
We’re going to take a look at understanding the FHA 203k loan. I’ll also shed some light on the types of properties that qualify for 203k loans.
What is an FHA 203k loan
First FHA stands for Federal Housing Administration as you may already be aware of and 203 K is actually this section of that National Housing Act which covers the loan.
So the FHA 203 that is supported by an insured by the federal government to help people who want to buy a rundown property and make it habitable through renovation.
Now section 203K allows the provision of loans to finance the purchase of a property that might need some costly repairs and rehabilitation.
The federal government instituted this to revitalize communities and neighborhoods as well as expand homeownership. You see the 203k loan covers renovations and rehabilitations only.
FHA Limited 203k
If you need a much smaller budget for a specific renovation the FHA has what’s called a limited 203k mortgage. They’ll quickly permit you to access funds up to $35,000 to help you remodel any part of that home.
Now getting proof for an FHA 203k loan is actually very easy.
The first step isn’t much different from getting a traditional loan except this time before you speak to your lender about it you first have to check and verify that your lender is an FHA approved lender.
Now follow these eligibility requirements to get an FHA 203k loan that will take you closer to living in the dream house that you’ve always pictured.
FHA 203K Loan Highlights
You’re going to find a property that requires renovation to make it habitable. Now that’s specific requirements for this type of loan really because if the house doesn’t require renovation it can’t qualify for this type of loan.
To know more about other FHA loans which offer you the option to buy a ready to move in house.
Now hire the services of an appraisal officer to help you ascertain the market value of a property. Sometimes that’s difficult to do if you’re not a professional or if you don’t hire one.
The types of renovations that will be needed on the property and the cost of each renovation will be something that you need to find out.
Now the next step is to submit an offer to purchase this run-down house. You have to specify in your offer that you’ll be assuming an FHA 203k loan for the purchase.
Once you submit the loan to an FHA approved lender then be sure to include the types of renovations and the cost of each in your application together with the cost of the property.
The lender will then assess your application and make certain demands to help them with approving your loan.
Now you want to be cooperative of course and make yourself available to provide all the documents that they need. You know to expect them to request credit histories to proof of income as well as tax clearances.
FHA 203k Loan Approved
So if you’re FHA 203k loan gets approved the date will be set for closing.
Now after paying the seller. The funds for the renovation will be held in an escrow account managed by your lender.
Before the contractor begins work on your house there will be certain milestones to set and they have to be agreed upon. These milestones when the meeting will be reported detailing every little bit of work that needs to be done.
So your lender will see that and your appraisal officer will have to verify the work getting done. Now you should know that the extent of renovations that at FHA 203k loan will cover ranges from minor to major constructions like demolitions to rebuilding.
Now for minor renovations qualifying must have a cost of $5,000 or more. Eligible renovation activities for an FHA 203k loan can cover a lot of stuff.