Getting a 203K Loan for a Fixer-Upper: A Primer on FHA 203k Mortgage Loans

The thought of buying a fixer-upper and turning it into your dream home can seem so perfect. Every nook and cranny met just to your desired specifications! Unfortunately, the reality of this belief can be harsh. When you calculate the total amount it will cost to remodel, you often realize that you cannot afford it or you find out that a lender will not provide you with a loan because the home is considered “un-livable” as it is. Luckily, that is where an FHA 203K loan San Diego comes in. An FHA 203k loan is defined as a loan by the federal government and is given to buyers who want to buy a damaged or older home and make future repairs to it.

Here’s how it works: for example, you want to buy a home that needs a brand-new bathroom and kitchen. An FHA 203k lender would then give you the money to buy or refinance the house plus the money to do the necessary renovations to the kitchen and bathroom. Often the loan will also include: 1) an up to 20 percent “contingency reserve” so that you will contain the funds to complete the remodel and if it ends up costing more than the estimates suggested and/or 2) a provision that gives you up to six months of mortgage payments so you can live elsewhere while you are remodeling, but still being held accountable to pay the mortgage payments on the new home.

Which repairs qualify?

FHA 203k mortgage loans include two main types.The first is the regular 203K loan San Diego, which is given for homes that need structural repairs such as a new roof or a room addition; the second is the streamlined 203k, which is given for non-structural repairs such as painting and new appliances. Also, other repairs that an FHA 203k will cover include decks, patios, bathroom and kitchen remodels, flooring, plumbing, new siding, heating and air conditioning systems and additions to the home such as adding a second story.

The program will not cover any “luxury” improvements such as adding a tennis court or pool to the property.

How much money can you get?

The maximum amount of money a lender will give you under an FHA 203k depends on the type of loan you get either regular or streamlined. With a regular FHA 203k loan San Diego, the maximum amount you can get is the lesser of these two amounts: 1) the as-is value of the property plus repair costs or 2) 110 percent of the estimated value of the property once you complete the repairs. With a streamlined loan, you can receive a loan for the purchase price of the home plus up to $35,000. To determine the as-is value of the property and/or the estimated value of the property post-repair, you may need to have an appraisal done. You can read details on how these estimates are made here. You will be required to put down 3.5 percent, but the money can come from a family member, employer or charitable organization.

What kinds of properties qualify for a 203K loan San Diego?

Qualifying homes include: a one to four family home that has been completed for a least a year, a home that has been torn down, provided that some of the existing foundation is still in place, or a home that you want to move to a new location. The home cannot be a co-op, but some condos are eligible. For a full list of eligible properties, see this. Also, your property will have to qualify under the usual FHA requirements. For example, its value cannot exceed a certain maximum amount and that depends on your living location.

What are the pros and cons of these loans?

The main benefit of these loans is that they give you the ability to buy a home in need of repairs that you might not have been able to afford to purchase. Also, the down payment requirements are minimal, and often you get decent interest rates (note that the interest rates and discount points will vary by 203k loan lender, so it’s important to make sure that you’re getting a good deal on the loan).The downsides are that not all properties qualify and there are limits on the funding you can receive and applying for the loan is not simple. For example, to apply for the loan you may need to hire an independent consultant to prepare the exhibits required (to get the loan, you have to provide a detailed proposal of the work you want to do and cost estimates for each item).

Please call San Diego Mortgage & Realty to get started on your 203K loan San Diego, CA: (858) 487-2208.