FHA 203k Mortgage Tips
If you intend to use the Federal Housing Administration (FHA) 203k mortgage loan for your next home, this article offers tips that will help expedite your closing. Before you make an offer on a house, make sure you find a reliable knowledgeable contractor that you can trust to inspect the house and provide you with a written estimated cost of repairs and improvements. Without a contractors estimate, you are guessing on the cost of improvements. Also, the contractor may find additional issues in the property that need to be repaired to bring the house up to code. If the house is located in a city that has a point of sale inspection, make sure that you have a copy of the violation list and receive an itemized estimate of the expected costs to repair the violations from your contractor.
The following is a basic description of how the FHA 203k loan works.
The FHA 203k loan allows the cost of home repairs, improvements, violations, and appliances to be added to your first mortgage while purchasing a property. Financing the costs of repairs, improvements, and appliances at the time of the purchase of a property potentially reduces a home buyers' expense. This loan type allows homebuyers to eliminate future financial obligations after taking ownership of a property. Typically, homebuyers would obtain a second mortgage, a home equity loan, a personal loan, or use revolving debt to pay for improvements or repairs when buying a property. The FHA 203k loan allows the acquisition and cost of repairs to be included in one mortgage.
There are two different versions of the FHA 203k loan. These options include the streamline and the full 203k version. The 203k Streamline program only allows home improvement and repair costs up $35,000. In addition, the Streamline option does not allow for structural repairs and does not require a HUD approved consultant to oversee the improvements and repairs. Although, homebuyers are required to submit a proposal from a licensed and registered contractor for no greater than $35,000 in improvements, repairs, and appliances (must also include contingency reserve of 10% to 20%).
Because the FHA 203k loan is permanent financing, there is only one mortgage loan to finance both the purchase and the rehabilitation of the property. The mortgage amount is based on the work being completed and the projected value of the property. This loan option is calculated based on the rehabilitation costs and projected value of the property.
Eligible improvements and repairs for the 203K Streamline Option include the following:
• Updated bathrooms and kitchen
• Modernize plumbing, heating, air conditioning, and electrical systems
• Roofing, gutters, down-spouts, siding, and windows
• Flooring and carpeting
• Energy conservation improvements
• Improvements for accessibility
• New free standing appliances
• Lead-based paint stabilization or abatement
If the FHA licensed appraiser cites any health, safety, or energy conservation items, they must be included in the contractors estimate and completed by a licensed contractor. Luxury improvements are not eligible. Structural work or additions can only be financed with the full 203K mortgage option.
Although FHA guidelines permit homebuyers to complete non-licensed repairs or improvements, most lenders require all repairs and improvements that are included in the mortgage to be quoted and itemized by a licensed contractor that is registered with the municipality where the house is located. Talk to your contractor about any non-licensed work that you would like to complete in the house. The contractor is responsible for all repairs, but they may allow you to do painting and other non-licensed work. Once you receive the estimate, contact the city building department where the house is located and include any permit or city inspection costs to your contractor's estimate.
Once you have all the costs associated with bringing the house up to a reasonable standard, ask your real estate agent for a list of comparable houses that have recently sold. This will help you verify the total costs of purchasing the house and help you decide the maximum amount you are willing to pay for the property.
Article Source: http://EzineArticles.com/expert/Michael_Zuren_PhD./1966583
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