Home buyers have many options available to them when they want to purchase a property. When a home buyer tries to purchase a property that needs to be renovated, the buyer's loan options become somewhat limited. Understanding the 203k loan and how it can help purchase a property that needs to be renovated is important. Here's what you need to know.
What Is a 203k Loan?
A 203k loan is an FHA backed loan that allows the home buyer to borrow money for the purchase and renovation of the home. 203k loans are different from standard FHA loans because standard FHA loans require the home to be in move-in ready condition when the home is purchased. 203k loans do not require the home to be in move-in ready condition.
Who Qualifies for a 203k Loan?
Typically, a person must have a credit score of around 620 or above, and must be able to make a down payment of 3.5%. The borrower must also have a stable income and acceptable debt to income ratio. 203k loans can be used to purchase a home or a condo, but cannot be used to purchase an investment property. 203k loans are available to first-time home buyers and home buyers who have owned a property in the past.
Are There Any Limitations on the Repair Work?
If the remodel is fairly minor, the buyer can get a 203k streamlined loan. The streamlined loan limits the borrower to $35,000 worth in repairs and does not require the borrower to use an approved contractor to perform the repairs. The 203k requires less paperwork to be completed than the standard 203k loan.
The standard 203k loan has no limit on the amount that can be borrowed for renovations. The standard loan requires that the work is to be completed by a licensed contractor. The contractor must complete a lot of paperwork throughout the renovation, and must stick to the original bid. All repairs must be completed within 6 months of purchasing the home. For the standard 203k loan, homeowners are best off hiring contractors who are already familiar with these loans and the paperwork required.
What Are the Pros and Cons of 203k Loans?
203k loans are an excellent option for Menlo Park Terrace home buyers who have little money but who would like to purchase a home that needs significant repairs. This type of loan may enable a buyer to get a home at a bargain price.
The major disadvantage of 203k loans is that they require the buyer and contractor to complete a lot of paperwork. However, for home buyers who have patience and who are able to follow strict requirements, then the 203k loan may be worthwhile.
What Should You Do if You Want to Purchase a Home With a 203k Loan?
If you're a home buyer who would like to purchase a home with a 203k loan, contact a lender who is FHA approved. If you don't yet have a real estate professional, contact a qualified real estate agent in your area who can help you with the purchasing process. Your real estate agent can help you through the process of purchasing a home with a 203k loan.