Almost everyone knows about FHA mortgages. They are tailor-made for first time homebuyers and others with less than perfect credit or other financial issues. You don't have to be low income or have bad credit to use FHA, but generally the loan limits prohibit high priced homes.
you may not know about FHA is that there is a special loan program
designed to provide the funds to buy or refinance your home PLUS
additional funds to make repairs or improvements.
FHA mortgage is called the 203K and the K is the operative part of the
name. Not every lender participates in the rehab loan program, but the
major national lenders do. If the loan officer you contact is unaware,
then call the corporate office and ask them to direct you.
FHA 203K loan program calls for an FHA inspector to go over the house,
using the plans you gave him. Before you get to this inspection phase,
you should be working with a general contractor who understands how to
provide plans and specs for a project. Plans and specifications are
standard in the contracting industry for anyone managing a project
>$5000, which is the minimum rehab amount for this loan program.
FHA inspector will decide if the project is feasible, depending on
whether there is additional work required to bring the property up to
code, and whether or not the property will appraise for enough to make
the project "worth it". FHA is willing to lend based on the after-rehab
value and will even stretch that value a little in order to get houses
brought up to code.
the lender is happy with the valuations, the plans and specs, and the
inspector's report, your loan file will be reviewed by an underwriter
specially trained and certified in rehab loans. Your credit and finances
do not have to be perfect to be approved, but the creditworthiness and
qualifications are similar to a regular FHA loan.
of the benefits of a 203K is that all costs can be added into the
project. The fees, permits, closing costs, etc. are all added up and
your downpayment on the purchase is calculated on the total. If you are
refinancing instead of purchasing, the amounts are totaled the same way,
but you might already have enough equity in the home to avoid coming up
with any cash.
next? Once approved, the loan closes and the rehab portion of the money
is escrowed by the lender. The contractor submits requests for payment
and each phase is inspected. As soon as the work passes the inspection
for completion, the contractor is paid. You can not go back to the well
for more money, so your initial plan must be a good one. A contingency
fund is usually added in during the total project calculation.
contingency fund can only be used to fund hidden repairs that were not
evident during the initial workup. Any remaining funds in the
contingency are used to pay down the mortgage at the end of the project.
FHA 203K mortgage is not a "piece of cake", but if you do not qualify
for low cost money at the local home improvement equity loan bank, then
it is very definitely worth looking into.
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