When shopping for a home, you might stumble upon a property that looks almost like your dream house but unfortunately, requires several costly repairs. With an FHA 203(k) loan, however, you can purchase that home and lump the cost of repairs and improvements into your mortgage.
Guaranteed by the Federal Housing Administration, FHA 203(k) loans have become a popular financing option in the country, especially in areas where housing is old and in need of repairs. This has also become the go-to loan option for people who buy foreclosures. This loan, however, is only available to owner/occupants. Investors who want to flip homes and sell them at higher prices aren’t eligible for this type of financing.
Another rule on this kind of loan is that the repair work must begin within 30 days of closing and be completed within six months. You must name a qualified contractor, as well. The funds for repairs will be placed in an escrow account; the contractor will only get paid in full once all the work is complete.
Speaking of repairs, certain types of projects may be ineligible for 203(k) financing. Major structural repairs such as installing an in-ground pool or fixing a cracked foundation aren’t qualified for this type of loan. But, you can fix the roof, do plumbing repairs, and remodel the kitchen.
Is FHA Loan for You?
Like all FHA loans in St. Louis, 203(k) mortgages come with an affordable down payment. It can be as low as 3.5%, and that is based on the total loan amount, including both purchase and makeover costs. But, of course, you’ll need a decent credit score to qualify for this loan. You should have at least a score of 580, though many lenders require a score of 620 or higher. In addition, interest rates on 203(k) loans are a bit higher than other loans backed by FHA, as there’s a greater risk for the lender until the renovation work is complete.
With FHA 203(k) loans, you don’t have to spend much making your dream home a reality. So, if you have an eye on a fixer-upper or a foreclosed home, consider applying for a 203(k) loan. If you want to learn more about qualified repairs for a 203(k) loan and its other requirements, don’t hesitate to contact us, today.