When you take out an FHA 203K loan, you are taking out money to conduct repairs or renovations on your home or a home you are purchasing. You can hire an expert like KVN Construction to work on your renovation. Because we all know that problems can occur when you start doing work on a home, the FHA requires a contingency reserve. The amount required depends on the extent of the work being done, but can range between 10 and 20 percent of the cost of the work being done on the home. Once the work is complete, however, what is done with the money? Can you use it for other repairs? The good news is that, yes, you can use the money for other repairs; the bad news is that everything must be approved.
Discussing the Repairs
The contingency reserve is not for you to do whatever you want with, unfortunately. The money can only get spent if the lender approves what you want to do with it. If the lender does not approve or there is not enough money to perform the repairs you want to do, then the money goes directly back towards the principal of your 203K loan. Typically, the lender will approve the changes that you propose unless there is concern that the health and safety of the home is still in question, at which point the lender would require the contingency reserve funds to be put towards those changes that will make the home safe and sanitary.
The Changes you can Make
Once the home is considered safe and sanitary and passes all codes, whether FHA, city, or county, you are free to do with the funds as you wish. You can make renovations that are considered somewhat structural, replace appliances, or even make cosmetic changes. The Appliance Guys offers a wide range of dishwashers from different brands, find more at their website. If you are using the full 203K, which is the only 203K program that requires a contingency fund, the options are limitless as to what you can do. Following are a few changes allowed on this program:
- Replace flooring
- Finish the basement
- Replace/repair roofing (visit our website at https://colonyroofers.com/)
- Repair/replace gutters
- Remodel kitchens
- Remodel bathrooms – Give your bathrooms the modern design by installing glass shower doors just like the ones at Glass Shower Direct!
- Change appliances
- Paint interior/exterior
- Repair termite damage
- Remove/repair mold damage
- Add a porch or patio
- Add a room
These are just a sampling of the changes you can make with the 203K loan. What it comes down to is the cost. You have to be able to get the costs approved by the lender as well as the contractor that will provide those costs and the work. The contractors need to be licensed and insured in order to work on the property and they have to meet with the approval of the lender. The value of the home must also come back high enough in order to get the loan large enough to complete the repairs on the home. The appraiser will take care of figuring out the future value of the home.
Once you know that the home is up to code and all of the repairs that the loan was designated to pay for are complete, you can make additional changes with the contingency reserves if they were not used. These changes can be just about anything as long as the lender approves. If you decide to not use the contingency funds, however, the money will come directly off of your principal, immediately knocking down the amount of time it will take to pay off your 203K loan. You will have to weigh the pros and cons of making further changes at this point, after you see how the house looks and if you need the work done or if you can pay for it out of your own pocket down the road.