Philadelphia is full of older homes that need some TLC to bring it up to modern standards of living, but getting that job done can be an expensive undertaking. One of the options to pay for the repairs and upgrades is to take out an FHA 203k loan to cover the cost of repairs and save you money over time. This FHA loan product is flexible, helps you get the home you’re after and bring it into code, and combines both mortgage and 203k loan into one loan so you only make one payment. A Philadelphia mortgage company can help you with more information on this type of loan and if it’s worth exploring for your needs.
What Is the FHA 203k Loan?
There are two types of FHA 203k loans. One is known as a Streamline 203k and the other is a Full 203k. The streamline 203k is a limited product while the full 203k lets you take advantage of all the aspects the program offers to borrowers. Both loans create an escrow account for funding a renovation so the mortgage can close and give the borrower the opportunity to start repair work as soon as possible. The escrow account lets the borrower to use up to 50% of the proceeds to pay a contractor and buy materials. The remaining balance is released once the work has completed and the borrower can pay off the rest of the work.
The streamline 203k helps a buyer purchase a home that would not otherwise qualify for FHA financing in its current condition and needs basic repairs or cosmetic upgrades to come up to FHA loan standards. It has a maximum loan amount of $35,000 and lets you do the work yourself or hire a contractor. You can’t use this loan for major repairs such as structural, foundation, additions, or renovations that require detailed work. Completion of the work can take no longer than 3 months.
The full 203k loan offers borrowers a lot more flexibility in terms of how the money can be used, but it has restrictions that can make them less appealing. Borrowers can use them for
- 1-4 unit homes
- 1-4 unit condos
- Conversion of single unit properties into 2-4 dwellings, and
- Tear downs or demolished properties where some or all of the original foundation remains
This loan can be used for structural or foundation work, and has restrictions that include working with a licensed contractor, can’t be used for investment properties, and there are extended closing times involved.
Getting Approved for Both Types of 203k Loans
In the event you decide you want to buy a home that requires work, the 203k may be something that makes sense. You will have to get re-approved for your mortgage due to the increased amount you want to borrow. In order to get approval for the new amount, you have to find a general contractor to assess the home and write up a bid for all the necessary repairs. Once the bid is complete, it goes to an appraiser who then revises the value of the home based on completion of the repairs.
The lender sends the borrower information, contractor bid, and appraisal to the underwriter for evaluation and approval. After approval, the borrower signs on the loan documents, the loan is funded, and part of it is put into the escrow account. Going through the 203k loan process can add time to the closing process, something that you should consider when looking at a 203k loan product.
Thinking about getting a 203k loan? You should talk to a mortgage specialist at a Philadelphia mortgage company for more information prior to deciding if it’s the right mortgage product for your needs. The 203k loan programs can help you buy a home that needs work provided you’re willing to go the distance. It’s always good to have full awareness of the limitations of both types so you can make the decision that’s right for you.