January 16th, 2020
Want a Fixer But Don’t Have the Cash to Fix Up?
203k Loans
So you want to buy a fixer-upper…
Buying a home that needs some TLC can be a good choice. Imperfect homes come with less competition from other buyers, and you can build tens of thousands of dollars in additional equity in a short time by making relatively minor improvements.
But there’s a reason not as many people want to buy a fixer. It does take more work, planning, and time compared to buying your standard “turn-key” home.
WHAT IS AN FHA 203K LOAN?
An FHA 203k loan, (sometimes called a Rehab Loan or FHA Construction loan) allows you to finance not one, but two major items 1) the house itself, and; 2) needed/wanted repairs. Because the lender tracks and verifies repairs, it is willing to approve a loan on a home it wouldn’t otherwise consider.
WHO IS ELIGIBLE?
FICO: FHA allows credit scores down to 580, although some lenders might require a score of 620-640 to qualify for a 203k. Still, that’s much lower than the 720+ you would probably need for a conventional construction loan.
Down Payment: FHA requires just a 3.5 percent down payment, based on the purchase price + total project cost. For instance:
Home price $200,000
Total project cost: $25,000
Down payment: $7,875 (3.5 percent of $225,000)
You can receive 100 percent of your down payment requirement via a gift from family.
Debt Payments and Income: Lenders will examine your debt-to-income ratio. This is the comparison of your income and debt payments. Typically, less than 43 percent of your income should go toward your proposed house payment plus all other debts. That’s $430 in payments per $1,000 of before-tax income.
Loan amount: You can borrow up to 110 percent of the property’s proposed future value, or the home price plus repair costs, whichever is less.
Occupancy: You must plan to live in the property you are buying.
Citizenship: All FHA loans are available to U.S. citizens and lawful permanent residents.
Bottom line, there are loan options out there to suit each buyers individual needs. Interested in learning what you’re eligible for? Let us know and we’ll connect you with our preferred lenders.
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Adapted from www.themortgagereports.com.