If you are thinking about purchasing a fixer-upper or if you are currently living in a home that needs work, you may be considering your options for financing the costs of the repairs. With the current state of the real estate market, many lenders have considerably tightened their underwriting requirements, making it more difficult to qualify for a conventional home improvement loan than before. Even if you find a lender who is willing to loan you the money needed to fix up your home, these loans are typically more expensive than most mortgage loans, and you will have two monthly payments to keep up with. You may be surprised to learn that the FHA has programs available to help homeowners and prospective homeowners make the necessary repairs to their homes.
Many people may already be familiar with the FHA’s program that helps insure mortgages for homebuyers who may be otherwise locked out of traditional homeownership opportunities. But the FHA can also help people who need to rehabilitate their property. The Section 203(k) program allows homeowners to purchase or refinance a property and finance all of the repairs using a single mortgage loan. One portion of the loan will go towards the purchase of the refinance, and the remaining amount will be placed in an escrow account and released as the work is completed.
In order to be eligible for this program, the property being financed has to be at least a year old and you must intend on using the property as your primary residence. 203(k) loans can be used to finance 1-4 family homes, condos, townhouses or manufactured homes. The total cost of the repairs has to be at least $5,000 but cannot exceed $35,000. Repairs eligible for financing under this program include, but are not limited to, structural repairs, remodeling, flooring, plumbing, painting, HVAC work, landscaping, installing new siding and upgrading the home to make it more energy efficient. Even complete renovations and restorations for demolished properties are eligible for financing as long as the existing foundation remains in place. It is also important to keep in mind that the total amount being financed (including the amount of the repairs) cannot exceed the maximum FHA loan limit for your area.
If your property only needs minor rehabilitation work, the FHA Streamlined (k) Limited Repair Program may be a better fit for your needs. The FHA unveiled the Streamlined (k) program in 2005 to help people who need to perform minor repairs to their property. Streamlined (k) loans good option for people looking to purchase a home whose pre-purchase inspection indicates that the property needs a little work. Major repairs such as complete renovations, structural repairs and room additions are not eligible for financing under this program.
Since Section 203(k) and the Streamlined (k) Limited Repair Program are insured by the FHA, it is relatively simple to qualify, even if you have less than perfect credit. As with all FHA loans, a minimum three percent down payment is required. To learn more about FHA rehabilitation loans, you should contact an FHA approved lender in your area.