If you’ve been thinking of purchasing or refinancing a home that is in need of repairs, the Federal Housing Administration (FHA) 203(k) rehab loan might be for you. There are two types of 203(k) mortgages: streamlined and standard. The streamlined version is for smaller projects and is a less-involved process.
Whether it’s for a Purchase or Refinance transaction the meat of the finance process starts with contractor estimates for a streamline K loan or a FHA consultant report for a standard K loan. An appraisal is then used to determine if the “after improved value” is great enough to support the cost of the repairs on top of the purchase price or, in the case of a refinance, what is currently owed on the home.
In addition to making sure your project is financially viable, other due diligence is done to ensure your success. It’s customary for us to check your contractor’s credentials, work experience, licensing info, type of worked performed, experience, and client references.
The lender needs to know the work is getting done by qualified people and that the draws that the lender sends are being used for their intended purposes. In most circumstances, third parties must be doing the work, as opposed to you or people you know in the trades. Draws are given out at certain points in the process, and some money is withheld until the end to make sure all the work is done.
There are additional expenses associated with renovation loans so they are best utilized for circumstances when significant repairs are required – not just incidentals. If you’re considering the purchase or “refi ”of a property that needs repair, call me to discuss a K loan and other rehab finance programs at 471-9300.