If you are considering buying a home that is in need of a few repairs, there is an FHA loan program that is designed just for this situation: the FHA 203k loan.
FHA 203k Loan Highlights
The FHA 203k loan been around for quite a while, but with the recent downturn in housing values, it has once again gained popularity. As short sales and foreclosures have spiked across the country, many home buyers are finding that the home they want to purchase is not-exactly-perfect and is in need of at least a few repairs.
The FHA 203k loan program allows you to by a home that is in need of a few repairs and finance the repair work into the FHA loan that you are getting on the house. The FHA 203k loan consists of the purchase price of the home and all construction costs that will be incurred after the close of the loan on the home.
The FHA 203k Loan: An Example Scenario
A simple example of what the FHA 203k loan may look like in reality can be seen in this example FHA 203k loan scenario.
- $100,000 purchase price of home
- $15,000 Repairs Needed
- $115,000 Total Loan Amount
Some of the frequently asked questions we see about the FHA 203k mortgage program include:
How much do you write the contract for a FHA 203k sales contract?
The offer is the purchase price of the dwelling only. You don’t need to include the cost of repairs anywhere in the sales contract or offer. In the above example, the purchase price on the sales contract or offer would be $100,000.
Is it easier or harder to qualify for an FHA 203k loan vs. a regular FHA loan?
The requirements to qualify are the same as a traditional FHA loan. What does it take to qualify for an FHA loan? Generally speaking, a credit score above 620, a good job and a down payment of 3.5%. Of course there are more details to being qualified, but those are the general highlights.
How do I go about finding the right contractor for the work?
It is advised that you work with a general contractor that can perform all needed repair work. Your loan officer can easily help recommend one – they should know at least one good contractor. It is also imperative that the contractor be practiced in FHA guidelines so that they can include any FHA required items in their contract.