FHA 203K

FHA 203k loans are perfect for those that want to make repairs to either their own homes, or buy a home that needs fixing. That is why the 203k is also known as the “rehabilitation” loan. A 203k loan is a combination of what is granted along with the mortgage of the home in which the loan is going to be used, as well as the repair escrow account to fund the renovations. The appraised value of the home is based on the value after the renovations have been completed. It can be used to increase square footage, add news bedrooms and bathrooms, renovate kitchens and bathrooms, and update floor plans to create an open concept. It is a permanent loan with no need for conversion after the construction is completed. Ineligible repairs include items such as: barbeque pits, outdoor fireplaces or hearths, hot-tubs, saunas, spas, or whirlpool baths, swimming pool installation, tennis courts, satellite dishes or antennas, dumbwaiter, photo murals, as well as alterations for commercial use. If a pool exists, the maximum repair is limited to fifteen hundred dollars. In order to qualify for an FHA 203k loan one must have a HUD consultant. They must also have an escrow account, as well as construction estimates. 203k usually involves major repairs including: structural improvements, and moving load bearing walls. Eligible properties can include: two to four unit conversions, planned unit developments, HUD condos limited to four per building. Some ineligible properties are new construction, condemned properties, properties that need to be demolished, co-ops, modular manufactured or mobile homes, condo hotels, unique properties, farms, orchards, ranches, commercial properties, as well as a non-completed certificate of occupancy. The certificate of occupancy must have been obtained more than twelve months prior of seeking the loan. A buyer should also get an appraisal done before obtaining a loan. This process can be done with the help of the buyer’s lender company. An appraisal requires all details of renovations. The contractor provides specific bid details and cost estimates. A buyer seeking into this loan will also be provided with a HUD consultant that should be approved by HUD themselves. This also includes a HUD consultant fee which will be included when granted the FHA 203k loan. The HUD consultant provides as well as fills out the specifications of the repairs report otherwise known as an SOR. One general contractor is responsible for the project. Subcontractors maybe used but must be managed by the general contractor. The HUD consultant also does inspections of completed work prior to each draw. HUD consultant fees need to be disclosed on good faith estimates, and part of APR calculation. This fee can range anywhere from $400 to $1,000 depending on how many repairs are needed to be taken care of, and how complicated they are. The escrow account will be accountable for the total of repairs that are held and dispersed, as well as the work that is completed and inspected. A contingency reserve will be included in the escrow account, and typically ranges from 10% up to 20%. The escrow account also includes draw inspection fees, if the home is uninhabitable during renovation for up to six months of mortgage payments. These mortgage payments can also be included and held in escrow. Escrow accounts can also be responsible for the fees for consultants, architectural or engineering fees, as well as update title fees and building permits. The maximum number of draws that are to be paid to the contractor is 5. The contractor has five months from which the loan is funded to complete all work and final inspection. All work is to begin within 30 days of funding. All draws are subject to a 10% holdback. The sum of holdbacks is paid with final draw, and no money should be paid to the contractor upfront.