203k Loans
An FHA 203K loan is a loan backed by the federal government and given to buyers who want to buy a damaged or older home and do repairs on it. Here’s how it works: Let’s say you want to buy a home that needs a brand-new bathroom and kitchen. An FHA 203K lender would then give you the money to buy (or refinance) the house plus the money to do the necessary renovations to the kitchen and bathroom.
Often the loan will also include: 1) an up to 20% contingency reserve so that you will have the funds to complete the remodel in the event it ends up costing more than the estimates suggested and/or 2) a provision that gives you up to about six months of mortgage payments so you can live elsewhere while you’re remodeling, but still pay the mortgage payments on the new home.
203k Loan Characteristics
1) A 203(k) loan allows borrowers to finance both the purchase (or refinance) of a home and the cost of its renovation into a single mortgage
2) It is backed by the Federal Housing Administration (FHA), which makes it accessible to borrowers with lower credit scores or smaller down payments
3) There are two types of 203(k) loans: the Standard 203(k) for major renovations and the Limited 203(k) for smaller repairs and improvements
4) The loan can cover a wide range of repairs, including structural work, modernization, and energy efficiency upgrades
5) Borrowers must work with FHA-approved contractors, and all renovation plans must be reviewed and approved before funding
6) Monthly payments are based on the total loan amount, which includes both the home’s purchase price and the estimated renovation costs
7) 203(k) loans can increase a home’s value by allowing improvements that may not have been affordable otherwise
8) While they offer a convenient way to finance repairs, the application process can be more complex and take longer than a standard mortgage due to required inspections and approvals
5) VA loans do not require mortgage insurance, which can save borrowers money on their monthly payments
6) VA loans have flexible credit requirements, which can help borrowers with less-than-perfect credit still qualify for a mortgage
7) VA loans can be used to purchase a variety of property types, including single-family homes, multi-unit properties, and condominiums
8) VA loans allow for options for refinancing, including streamline refinancing and cash-out refinancing, which can help borrowers lower their monthly mortgage payments or access equity in their home.
Disclaimer: Johnnie Fleming, NMLS #1177346 – NEXA Mortgage ("LD," "We," "Us," "Our") is exempt from mortgage and NMLS licensing for the states we lend in. Our loan products require a business purpose, and the property must be used as a non-owner-occupied investment property, also known as a rental property. Our rates, loan terms, and loan conditions are only offered to qualified borrowers, and may vary based on loan product, credit score, real estate investment experience, deal structure, property state, and several other applicable considerations. Our rates, loan terms, and quotes, are subject to change daily, at any time, with or without notice. Loans requiring less documentation may result in a higher interest rate and higher annual percentage rate ("APR").
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