FHA 203k: cash for home improvement
Despite today’s home buyers having an abundance of low- and no-downpayment mortgage options, meeting minimum downpayment requirements can be a challenge — especially because home values are climbing nationwide.
The choice to make a downpayment gets even tougher when we consider that very few homes are “move-in ready”.
Buyers often want to make minor (or major) repairs to a home after moving in, and home repairs cost money — money which may have been used on a downpayment.
The FHA 203K program accommodates this trade-off.
Available via the Federal Housing Administration, the 203K loan lets a buyer make the minimum 3.5% downpayment while also allowing the buyer to finance home repairs directly with the mortgage.
There’s no similar program available via Fannie Mae and Freddie Mac.
Via the 203K, a borrower can finance both the purchase of home, and its subsequent repairs.
The FHA home construction loan
The FHA 203K loan is today’s “home construction loan”. It allows a home buyer to finance home repairs into a mortgage, directly.
The program is not just limited to home buyers, however. Exiting homeowners can use the 203K to finance home repairs and home improvement projects, too.
The refinance version of the 203K pays off all existing loans against the home, then provides additional funds to be used for home repairs.
Because the loan is backed the FHA, lenders are insured against loss, which contributes to the program’s relatively low interest rate as compared to other construction loans available via banks.
The FHA 203K loan can also come in handy in a foreclosure sale, where a home has fallen into disrepair. 203K loan proceeds can be used to pay for updates…