Every loan has costs; that is how the lender is able to have the funds necessary to process the loans. The 203K loan might seem like it has higher fees because of the extensive work involved, deterring some people from rehabbing their home this way, but the truth is that the fees are virtually the same as any other loan. You are not being charged extra for doing renovations on your home; you are strictly paying fees that are directly related to getting any home loan.
The One Exception
The one exception to the fees that are paid on a 203K loan is those that are paid to the HUD consultant. Because this is not directly tied into the loan, it is a separate agreement that must be drafted to determine what will be paid. This agreement should not only include the money that is to be paid for the services, but also what the services will entail.
Basic Loan Fees
After the loan consultant fee, the remaining fees are fairly basic for what you would pay on any loan including:
- Appraisal – Every loan needs an appraisal in order for the bank to determine how much money they can lend you. Appraisal fees vary by area but are pretty standard for every appraiser in your area.
- Inspection – Every home must also be inspected in order to ensure that it is up to code and is safe for you to live in. If it is not inspected, a loan will not be provided.
- Credit report fee – This is the fee that the lender is charged to pull your credit, which gets passed down to you
- Loan origination fee – This fee covers all of the costs that are necessary to process your loan on the lenders end
- Title fees – The title company will need to search the history of your property to ensure that there are not any liens on the property
- Title Liens – In addition, the consultant may need to perform certain tasks to ensure that you are not hit with mechanic’s liens on your property, which could incur additional fees
- Underwriting – The bank or lender may charge an additional underwriting fee to evaluate your application and approve it
As you can see, the fees for the 203K loan are similar to a standard loan, with the exception of the loan consultant fee, which is very valuable to you and well worth the money. In the end, getting a 203K loan as opposed to any other type of financing after purchasing your home is much less expensive. The costs that you will be charged are the same as those that you would be charged if you were strictly getting a loan to purchase the home rather than rehab it. If you took a separate loan after the fact, you would pay the same fees over again, costing you almost double the amount on your mortgage just to update your home.
The 203K loan lumps everything into one loan and streamlines the process for you, even providing you the protection you need to ensure that you are not being taken advantage of or that you are not held liable for fees that are the responsibility of the contractor and not you. The costs can be paid by gift money from others or even the seller, if they are so inclined, at a maximum of 3% of the purchase price of the home. The 203K loan offers the FHA benefits with the additional benefit of fixing up a home that you desire to live in.