SEATTLE ( Zillow) -- In most areas of the country, the number of homes for sale needing at least a few repairs before move-in is substantial, because many times in a short sale or foreclosure situation, the seller will allow the home to go into some state of neglect.
To help pay for needed repairs, buyers shopping for a mortgage should look into the FHA 203k loan program.
|The FHA 203k is popular with buyers of fixer-upper homes, and for good reason.|
The FHA 203k loan program can be grouped into two types of loans: the FHA Streamline 203k loan program and the FHA 203k loan. The FHA 203k streamline is designed to be a limited repair program and has simpler processes and no HUD consultant required, unlike on the full FHA 203k loan. In my experience, the FHA 203k streamline is a more popular option since many of the needed repairs for bank-owned homes can be considered "cosmetic."
Highlights of the FHA 203k streamline loan:
- It works very similar to a construction loan, allowing you to buy a home that wouldn't qualify for FHA financing due to repair work being needed.
- The loan amount is equal to the purchase price of the home plus the amount needed for repairs.
- It allows for repairs ranging from $5,000 to $35,000.
- Qualifying for FHA 203k loans are the same as regular FHA loans.
- Repair work cannot begin until the loan closes, and the money to pay contractors comes from an escrow account set up when the loan closed.
- FHA 203k loans require UFMIP and MIP, just like regular FHA loans.
- Appraisal are required.
- They're available for owner-occupied properties only, although rumors are surfacing of an "Investor 203k loan" coming soon.
- As-is cost of a home: $150,000
- Improvement costs: $20,000
- Total cost of home after improvements: $170,000
- Required appraised value: $154,545