What Homebuyers And Homeowners Should Know About The FHA 203k Closing Cost For Renovation.
Like all other real estate loans, the FHA 203K has the same typical closing costs such as Title, Lender, Attorney, Escrow and Recording Fees to name a few, but unlike the others there are also additional calculations involved that you'll need to consider when financing a 203K Loan. The first thing you'll need to do when figuring out 203K closing costs is to list and estimate the cost of all the repairs & rehab that you are planning for the property. This is essential because the 203k closing costs will be calculated based on this amount. The following is a list and explanation of costs involved when financing a 203K Loan.
FHA 203k Contingency Reserve
The first step is figuring out the FHA 203k contingency reserve on the repair & rehab costs...The contingency reserve are for overruns and un-expected expenses that can arise during the project. Now, if you ever had to hang up a picture on a wall and had to make two holes to place one nail then you'll understand why this reserve is needed. The amount for this reserve is 10% based off of the repair & rehab amount but can go as high as 20% depending on the project and property. The amount of the reserve is actually not a true cost because if you were to stay on budget the contingency reserve left over can be used to pay down the original loan or used for any extra work if approved.
FHA 203k Inspections & Title Updates
Inspections and title updates are completed to make sure the work is done and no additional liens are put on the property. Inspections are done by HUD Cost Consultants or Appraisers depending on whether it's a Standard (Full) FHA 203k or a Streamline 203k loan. Costs can vary on both of these fees. An average estimated amount to use would be $150 to $250 for Inspections and $50 for Title Updates.
Mortgage Payments Financed
If you have an FHA 203k loan that is the Standard version (full) rather than a Streamline then you can finance up to 6 months of payments. Now as appealing as living with dust and loud noises while cooking on a Bunsen burner might be to some, it's good to know the rest of you have the choice to have all the repairs and rehab done before moving in. Of course there are economic factors that play a role as well. Adding more money to your new loan may sound financially un-feasible but the flip side would be the cost of your comfort or the extra work time needed to complete work phases when a property isn't vacant which in return would have a cost.
Architectural and Engineering Fees
If you're doing an FHA 203k Streamline these fees would most likely not apply. But for projects that do need an architect or an engineer this cost can be financed into the 203k loan. Keep in mind that this fee depends on the scope of the Architect/Engineer services and is associated with the type of project your doing rather than with the 203k loan.
Standard (Full) 203k loans need an FHA cost consultant and are optional on 203k Streamlines. Their role in short is to review the work estimates so that they can do the work write ups, inspect the completed work and fill out the paperwork needed to get the checks released. Their fees range from $400 to $1000 and higher when the repair or rehab amounts are over $100k and when there is more than one unit. My advice is to talk to your consultant so you know what to expect from them and what the cost will be.
The repairs or rehab for your project may require permits from local city or county agencies. When permits are required the cost can be added into your 203k loan amount as well. Your contractor should be aware of any permits needed and should let you know when giving you an estimate.
Supplemental Origination Fees for the Standard and Streamline 203k
On all FHA loans an origination fee is typical. An origination fee is a percentage of the loan amount. For instance a 1% origination on a loan amount of $100k would be $1,000. The difference with an FHA 203k loan is that a supplemental origination fee is charged on the repair & rehab portion. That amount is 1.5% of the repair or rehab amount or $350.00 whichever is more. Consider this cost as an administration fee for setting up the escrow account that will handle and disburse the checks as needed.
Discount Points on Repair Cost and Fees
Interest rates at times will come at a price on what is called discount points. (Discount points like the origination fee is a percentage of the loan amount.) Same example 1% discount on a loan amount of $100k would be $1,000. So, sometimes to get a certain interest rate discount points are charged. Those same discount points would also apply to the repair and rehab portion as well.
Well there it is...the costs associated with the FHA 203k renovation loan. Now remember, these costs only apply to the repair and rehab amount and as mentioned earlier there would still be the standard closing costs such as Title, Lender, Attorney, Escrow and Recording Fees but these costs apply to all Real Estate Loans.
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