The 203k loan is made possible by the Federal Housing Administration (FHA) to those who want to improve the state of their home. Leawood homeowners can use it to remodel an unsafe property or upgrade it to make it more modern or otherwise livable. The government backs this loan because there are so many neighborhoods across the country that could use some revitalization. Homeowners can use this special type of mortgage loan to renovate their house when they buy it.
All FHA loans have a minimum credit score of 580, though most lenders are looking for 640 or more. Homeowners are allowed to apply for the loan either after they've purchased the home or during the buying process. If purchasing the home at the same time as applying for the home, buyers will need a down payment of at least 3.5% of the purchase price of the loan as well as the estimated cost of repairs. This loan will not be granted for second homes or for home flippers, though some people will use it as a route to refinancing their existing home. All repairs must be completed by an approved contractor.
Types of 203k Loans
There are two major types of 203k loans: streamline and standard. The interest rates for both types of loans will depend on the lender that a homeowner chooses, but they tend to be 1% more than a normal home loan (which is far less than most home loan repair rates). A streamlined loan is meant for those who need $35,000 or less for their home repairs, while a standard 203k loan does not have a monetary limit. Both loans required homeowners to give lenders an itemized list of repairs so they can review and approve what's being done to the property.
How to Decide
Standard loans are available for major repairs, and they can be used to repair houses from the ground up. Only a small portion of the foundation needs to be attached to the property to be considered a 'remodel'. But because there are no limits, a standard loan is going to have much more paperwork for homeowners to complete. The underwriting process can be long and arduous, so homeowners should be aware of the potential delays before getting started. Streamlined loans are much easier to apply for and receive, even though the monetary limits may not apply to all homeowners.
Tips and Tricks
There are plenty of options available to homeowners for different types of remodels. If the family needs to stay somewhere else during construction, for example, they can borrow their first six months of mortgage payments to offset the inconvenience. Homeowners also have the option to lump the costs of the 203k loan into their mortgage payments so they don't have to keep track of separate payments. Finally, make sure to check out different lenders before settling on one—reputations often mean far more than posted interest rates.
No matter how well built a home may be, eventually homeowners are going to need to show it some love if they want to get the most out of their investment. The 203k loan makes it easier to make the fixes the home needs without having to take out a typical repair loan. Visit a few lenders to get a sense of what's available to take the first step toward the home of your dreams.