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Considering a 203k Loan?

Here are a Few Things to Consider

What is a 203K Loan?

FHA’s Streamlined 203(k) program permits homebuyers to finance up to an additional $35,000 into their mortgage to improve or upgrade their home before move-in. With this product, homebuyers can quickly and easily tap into cash to pay for property repairs or improvements, such as those identified by a home inspector or FHA appraiser.


This is a great program if you are trying to buy a home that doesn’t pass a conventional or FHA inspection. Most other loans would require that the home be fixed before closing but the 2o3k loan allows you to roll in the repair costs into the loan and close prior to renovation.

Who's Eligible?

If you qualify for a standard FHA loan then you’ll more than likely qualify for the streamline 203k program as well. Some investors have slightly higher credit criteria to qualify.


Eligibility Requirements

  • You must have a valid Social Security Number, be a legal resident of the United States and be of legal age to obtain a mortgage in your state.
  • The lender verifies whether you can qualify for the mortgage by checking income, assets, debt load and credit history.
  • Typically, the only income limitation is to have enough income to afford the mortgage in addition to other debt payments. Utilities are not included in this calculation.
  • Although there is not a minimum credit score required to qualify for FHA, your score is still examined to help determine the interest rate. Most investors require a 640 or higher credit score to qualify.

Home Restrictions

The Streamline 203K mortgage is perfect for fixing items on a property that don’t meet the FHA guidelines to use standard FHA financing. Typically you can finance into the purchase loans the costs of upgrades and replacements as long as they are not structural repairs.


With a FHA Streamline 203k Mortgage you can add an additional $35,000 worth of repairs, appliances, etc. into the loan. The repairs have to be completed by a licensed/bonded contractor. Typically half the cost of the project is paid to the contractors at closing and the remaining amount is paid upon completion, after closing.

Unlocking Opportunities in the Real Estate Market

In today’s real estate market, many potential buyers run across short sale homes and houses close to foreclosure. Some homes have already been foreclosed and are now for sale by financial institutions that own them. While this leaves some potential buyers leery, it is potentially a good opportunity to find larger properties with plenty of space and amenities.

Property Neglect

Oftentimes, homes that have gone through foreclosure or are on the verge of it, are not in top condition. Small repairs have been neglected leaving potential buyers to wonder what else may be wrong with it.


A careful walk-through with a home inspector would be helpful. Making a list of what needs to be fixed will help lessen the surprises after purchasing the property.


The home’s exterior is often the most neglected. A few weeks of mowing the lawn and freshening up the flower beds will require little investment. For houses with siding, it could be more involved. Decide whether it needs to be pressure washed, painted or re-sided.

Roof

The roof is one of the most important and most expensive things to replace. Look for buckles, streaks and missing shingles. Re-shingling may be an option.


Potential buyers should find out when the roof was last serviced or replaced. A careful inspection of the attic interior will probably be very educational. If it looks sound, there are likely few problems, if any. Keep in mind that many mortgage companies will not approve financing on homes without a solid roof.

Possible Shorter Closing Time

One advantage to a foreclosed property or a short sale is that the sellers are often in a hurry to unload their burden.


Taking the time to make sure everything is in order is especially important for both parties. While everyone may have to move faster, a motivated buyer can take advantage of a quick turnaround. If they are not in a hurry, this will leave more time to prepare the property before moving into it.

What Will Convey

Depending on whether the present homeowners are living in the house or not, there may be items inside that will convey that might not normally be part of the deal.


For example, any appliances, hot tubs, above-ground swimming pools and window treatments could convey upon request, leaving more money for the buyers to invest on home improvements.

Working Appliances

Check to make sure that any appliances that will convey are in proper working condition.


Ovens, washing machines and refrigerators may require repair or replacement after sitting dormant for a long period of time.

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