When you purchase a home, you do so in the hopes that you will have a great return on your investment. Because the economy and the housing industry are so volatile, you never know what you are going to get. Some areas continue to rise in terms of value, while others are still struggling to get out from the dark hole they fell into during the economic down turn. The good news is that 203K loans can help you get that value back, whether you plan on moving in a few years or you are going to keep the home long-term. In the end, you are left with an incredible return on your investment, making the 203K process a very profitable one.
How 203K Loans Work
203K loans provide you with the ability to renovate a home right after purchasing it. You do not need to secure separate financing – it is all tied into one loan. The best way to do this is to purchase a bank owned property or one that is deeply discounted because of the amount of work that needs to be done to it. You use the 203K loan to purchase the home and the remaining funds that you are eligible to receive are used to fix the home up with both necessary and desired changes. You do not get the funds in your own hands, but the lender holds onto them and pays the contractors as they complete the work on your home.
How you Gain Equity
Some equity might be instant, depending on the value of the home you purchase. If you are making drastic changes to the home, the change in value may be drastic. For example, if you purchase a bank owned property, it is likely deeply devalued because of the work that needs to be done on it. Typically, foreclosed homes are unkempt and even destroyed, depending on who lived there prior to being evicted. When you purchase the home and immediately make improvements to it, the value instantly increases, giving you equity in the home. Even if you do not purchase a bank owned property, but just a home that needs a lot of TLC, the value can increase right away as the work needs to be started within 30 days of the closing and completed within 6 months. That is a short amount of time to see a great increase in your equity.
Not a House Flipping Program
It is important to realize that 203K loans are not meant for flipping houses, though. Because it is an FHA program, you are only eligible for this program if you are purchasing an owner occupied property; it is not eligible on investments. This means that flipping the house for a serious profit is not going to happen – you have to live in the home. Of course, if you sell the home shortly after purchasing it, you may be able to make a decent profit; however, you will not be very likely to be able to get another 203K loan any time soon since it is meant for primary residences only.
A Great Investment
Overall, the 203K loan program is a great investment. It enables you to purchase a home that you would otherwise not be very fond of and make it look just how you desire. If you stay in the home for a few years or many, many years, you are going to be able to make a decent profit on it while living in a home that you love for those years. The 203K loans give you the best of both worlds and helping to ensure that you have a great return on your investment in the end.
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