You may have never heard of the loan program backed by the Department of Housing and Urban Development (HUD) called the FHA 203k loan. The 203k hasn't seen much press since its inception in the late 1970's. Since then, lenders have been able to partner with state and local housing agencies, as well as nonprofit organizations to rehabilitate properties. Despite this great move, the 203k remains largely in the shadows. Some of the reason would be a stigma attached to the FHA 203k that it's a difficult loan to deal with. But that doesn't have to be the case. The Standard 203k from the 70's can have issues with difficulty or timing, but an experienced mortgage advisor should be well-equipped to handle this loan program.
Also, the 203k Streamline was added to the program a few years ago. Now home buyers have another option to finance home improvements, repairs, renovations, or rehabilitation.The basic difference between the Full and Streamline loans is the money you can roll into the mortgage (the Streamline covers up to $35,000) and the kind of work that's covered (the Full will cover structural repairs). So whether it's new paint, carpet, siding, appliances or windows that you want to replace, or it's something that you need to replace because it's a structural issue, the FHA 203k can help by rolling the cost into the mortgage.
FHA 203k Red Flags
The unfortunate thing about the 203k is that many people either haven't heard about it, or they've heard the loan program is bad. Let's take time to dispel the rumors and negativity about this mortgage loan.
Closing times are too long. Quite often the problem with the FHA 203k loan program is that those involved may not have a grasp on all of the inner workings of it. This starts at the top: your mortgage consultant should be a 203k Specialist. This person should work with other professionals who are well-versed in the loan and the work it takes. While getting the loan set up and closed could take a little longer than another program, it generally should not take more than a week or two longer. Getting the bids in on the work is often what adds to the process, which is why contractors need to know about the 203k. It's also why we work hard to offer continuing education to real estate professionals in our service areas. The more people educated about the program, the more powerful would-be borrowers we will have.
- Bids, contractors, draws - it's just too complicated.. The 203k definitely has a of working parts. Working with your lender, a real estate agent and the contractors can be a huge undertaking. One way to take care of the stress is to work with a lender who's a 203k Specialist. A mortgage consultant should have a trusted network they work with to help get the job done efficiently.
- Instant equity is a myth. Actually, the 203k can take the place of the old home equity loan. Whether it's a purchase or a refinance, the future value of the home after the improvements or repairs gets factored in, creating instant equity. Let's look at the number: a home for sale for $80,000 in an area with homes valued at $140,000 might need $40,000 in upgrades or repairs. That means a mortgage loan of $120,000 for the house and the work. You now have $20,000 in instant equity.
- It costs less money and less work to just rent. There are costs involved whether you rent or own your home. Whether it's lawn care or utilities, you will need to do the work yourself or pay for it if you own your home. A landlord might cover all of that if you're renting. However, the equity you will build and the freedom from a renter's nightmare outweigh those perks. Also, it's a buyers market right now with home values low and interest rates still hovering at near-record low levels.
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If you're interested in a 203k loan let the 203k expert, Mike Young, help you! With many years of experience working with and training others in the 203k loan, he will be able to help you every step of the way.