FHA’s 203(k) loan enables the homebuyer to finance both the purchase and the repair or rehabilitation of a home through a single mortgage and is an important tool for community and neighborhood revitalization and for expanding homeownership opportunities. Basically, a portion of the loan is used to buy the property or pay off existing financing and the remainder is placed in an escrow account and released as rehabilitation is completed. To provide funds for the rehabilitation, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work.
Luxury items and improvements are not eligible as a cost rehabilitation. However, the homeowner can use the 203(k) loan program to finance such items as painting, room additions, decks and other items even if the home does not need any other improvements. All health, safety and energy conservation items must be addressed prior to completing general home improvements.
When all work is complete according to the plans, the borrower provides a letter indicating that all work is satisfactorily complete and ready for final inspection. If the HUD-approved inspector agrees, the final draw may be released. If there are unused contingency funds or mortgage payment reserves in the Account, the lender must apply the funds to prepay the mortgage principal.
Basic guidelines for 203(k) are as follows:
– The home must be at least one year old.
– The cost of repairs must be at least $5,000, but the total property value – including the cost of repairs – must fall within the FHA maximum mortgage limit
– The 203(k) loan follows many of the 203(b) eligibility requirements.
Call Mark Lackey at Atlanta Housing Source today at 404-886-8789 to find out how to qualify for a 203(k) loan program if you are looking to buy a foreclosure or home in need of renovation. He and his experienced team service Metro Atlanta to include Gwinnett, Cobb, Forsyth, North Fulton, Dekalb, and Henry counties.