FHA home loans are mortgages for a primary residence insured by the Federal Housing Administration. Investors cannot purchase or refinance with FHA home loans. There are different types of FHA home loans included FHA insured loans, FHA loans with a repair escrow and FHA 203k loans.
FHA insurable loans means that a property meets the Federal Housing
Administration's minimum property standards. These minimum standards
include working heating, plumbing, electrical, roof and mechanical
systems. Properties purchased with a FHA insured loan may still need
cosmetic improvement, but the mechanical systems must be in working
FHA insured with a repair escrow home loans are used to purchase HUD
homes listed with a repair escrow of less than $5,000. The repairs a
home buyer may borrow money to fix are minimum property standard repair
items such as mechanical systems. If the repairs exceed $5,000, a FHA
203k loan must be used to acquire or refinance a home.
FHA 203k loans are rehab loans used for home improvement. There is also a
FHA Streamlined 203k for limited improvements of up to an additional
$35,000 to improve or update a home. The repair money is added to the
purchase amount (minus the down payment) for payment on one mortgage.
Properties must have an appraised value to include the cost of
improvements. Purchasing a home for $100,000 and borrowing $25,000 for
improvements mean the home must appraise for at least $125,000. Repairs
are completed after closing and paid from an escrow account with
rehabilitation funds to include a minimum 10% contingency fund.
With a FHA Streamline 203k there are specific repairs that are allowed
or not allowed, in order to qualify. Properties in need of major
renovation or that requires the repair of structural damage are
ineligible for a Streamline 203k. Other restrictions apply.
A FHA 203k loan is more versatile rehab loan and eligible improvements
include new appliances, painting, additions like adding a second floor,
finishing the basement, and new granite countertops just to name a few.
You can also set up a mortgage payment reserve of up to six months of
mortgage payments so that you don't face the burden of two mortgages
during the renovation period.
FHA home loans are used to purchase and refinance homes including HUD
homes for sale across the country. First time buyers can purchase and
renovate a dream home and find great value in HUD owned properties.
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