FHA 203K loans are not as widely recognized as regular FHA loans and it is unfortunate since this great program makes it very easy to afford the changes you want to make to your home. You can choose from the streamline 203K program, which allows changes up to $35,000 that are non-structural or you can opt for the full 203K loan which does not have a flat dollar amount maximum, but rather focuses on the future value of the home after the changes are made; once that value is determined, your maximum loan value becomes 110 percent of that value or however much your individual qualifying factors enable you to receive. Following are five things that you might not know about this great program that may convince you to give it a try.
Termites are OK
For most loan programs, having termites in a home would be a deal breaker. The home would not pass inspection and the financing would fall through. The opposite is true for 203K loans, however. The inspection can show proof of termites and the financing could still get approved. A contingency in the financing would be that the termites are removed and the damage repaired, however. A part of the process of the 203K program is to bring homes up to code using the funds provided by the loan and pest control – termite infestation is one of those items that could be done. To get rid of pests from your space, the pest control minneapolis can help!
You can Refinance your Existing Home in a 203K Loan
FHA 203K loans are not just for home purchases; you can use them to refinance your existing home as well. They serve as a great alternative to home equity loans because they provide the financing you need to make changes to your home without the need to have a second lien on the property or even to qualify for a second mortgage. Calling in experts when in search for a home loan broker Hobart is what you need to do in order to not lose money and time unnecessarily. Everything is done with one mortgage with the 203K program. The largest difference between this loan and a home equity loan is that the funds are not disbursed to you at the closing; they are kept in an escrow account that the lender holds onto until the disbursement dates arrive that are predetermined at or before the closing.
The FHA Back to Work Program is Allowed in the 203K Program
The FHA Back to Work Program was recently set up to help people that suffered financial destruction during the downturn of the economy purchase a home. Because so many people suffered bankruptcies and foreclosures as a result of losing their jobs, they are unable to purchase homes today without waiting the long periods required by each program. The FHA typical waiting period is 2 years from the date of a BK discharge and 3 years after a foreclosure, but with the Back to Work Program, you can wait just 12 months and purchase a home, including purchasing a home with a 203K loan. All you have to do to qualify is prove that you lost at least 20 percent of your income because of a company closing or downsizing as well as prove that you have since increased your income and made good on your debts moving forward.
No Specific List of Approved Contractors
Because with 203K loans, you have to have contractors do the work, most people assume there is a list of approved contractors they must go through o find someone to do the work on their home. This not true, though. While it is true that you have to have a contractor do the work on your home, there is not a HUD approved list or anything of the sort. You can choose whichever contractor you feel comfortable using as long as they have the credentials to show the lender that they are qualified for the job. These credentials may include proof of licensing, insurance, experience to handle the designated jobs, and proper referrals if the lender requires them. The lender will also need to approve the job estimates that the contractor provides, which must be in writing.
The Funds are not Disbursed at Once
Once you close on your 203K loan, the funds are not immediately disbursed. The only funds that go out are those to the seller if you are purchasing a home or to the previous first mortgage holder if you are refinancing. The remaining funds go into an escrow account. If the chosen contractor has requested a portion of the funds up front in order to purchase supplies and/or permits, those funds will be released as agreed upon in the contract drawn up by the lender and contractor. The remaining funds stay in an escrow account provided by the lender. It is only upon inspection of the completed work that the remaining funds are disbursed. If you have a streamline 203K loan and the costs are under $15,000, you can perform the inspection yourself and let the lender know if funds should be disbursed. If the costs are over $15,000 and/or you have a full 203K loan, you have to have either the lender or a loan consultant perform the inspection before any funds are released.
203K loans offer incredible flexibility in fixing up your existing home or a home you wish to purchase. Most FHA lenders also offer these loans, which means there are plenty of lenders you can compare costs/rates amongst to find the best deal. Because it is an FHA loan, the program is typically easy to qualify for and can provide you with the amazing results you desire in your home.