I read an article today regarding using FHA 203(k) loans to purchase and rehabilitate distressed properties. In the piece the author gave some “for instance” examples, such as…
[purchasing and turning] a dilapidated, community eyesore into a college rental that could serve as an alternative to dormitory living for your kid, then as a long-term housing resource for faculty and staff once she has moved on?
The author gives concrete number examples showing the amounts for downpayment and monthly expenses. You can read the entire article here: Using an FHA 203(k) loan to buy a college-town rental
What’s an FHA 203(k) loan you may be asking? To get the details I asked Patti Boorman, one of the Home Mortgage Consultants at New American Mortgage with whom I’ve worked in the past. Patti provided the following bullet points along with a link to a video explaining the loan further.
If an FHA 203(k) loan interests you give Patti Boorman a call. If you want to find a fixer-upper give me a call.
Just remember the standard FHA guidelines apply
- Must be owner occupied (no second homes)
- 3.5% down payment
- Down payment and closing costs maybe 100% gifted funds
- Non-owner occupant co-signers
- Available for 1-4 units (as long as one is owner occupied)
- Rates are generally about .5% higher than standard FHA
Two types of programs: the 203K Streamline and the full FHA 203K
- Streamline 203K
- Allows for repairs up to about $30,000 (due to contingency, some fees that must be added in)
- First priority is health & safety items then “wants”—new paint, new flooring, appliances
- No structural items (no moving walls, adding rooms)
- Full FHA 203K
- Minimum $5000 in repairs—no maximum (up to 110% of appraised value)
- Requires use of HUD consultant who works with buyer and their builder and completes feasibly workup of repairs. He also completes the inspections prior to contractor draws
- Structural ok, can add additions, outbuildings (barns)
- Up to six months of mortgage payments maybe financed in (if property is not habitable during construction period)
Most important thing to remember is the contractor bid (licensed) must be completed before we can order appraisal. After the bid is completed the time frame for processing is the same—less than 30 days.
Click here to watch a video on the 203K
FHA Loan Limits by County
- Washoe County $403,750
- El Dorado County $580,000
- Douglas County $468,750
- Alpine County $547,500
- Lyon County $331,250
- Nevada County $562,500
- Churchill County $271,050
Related post: Changes with the Nevada Rural “Home at Last” program
203k loan is a government program that enables you to purchase a home and finances certain upgrades and repairs as part of your mortgage. It is a very good program however, getting it is not the easiest process. You have to team up with a great lender who is knowledgeable about it.