An FHA 203K loan is a type of mortgage that is insured by the Federal Housing Authority (FHA). The FHA approves the lenders who are able to offer this loan, and also must approve the contractor for the home repairs. Since the FHA loan is insured by the federal government, it is easier to qualify for than a private loan.
Because the FHA only lets approved lenders provide these services, you can feel assured that you are getting the best rates and services. Some other benefits of FHA 203k loans are:
- An FHA 203K loan combines home purchase and repairs into one loan so you are only paying interest on a single loan instead of several.
- You can use this type of loan to pay for up to 110% of a home’s appraisal value or the home price combined with projected renovation costs. You can borrow whichever amount comes to a smaller total.
- The FHA requires only a 3.5% down payment on new homes with an FHA 203k loan.
Additionally, an FHA 203K loan will typically have slightly higher mortgage rates than standard FHA loans.
However, that rate will still be lower than most mortgage rates you will find on the market.
Plus, if you cannot live in your residence while it is being repaired, you can use an FHA 203K loan to finance up to six months of mortgage payments during renovation.
Finally, FHA 203K loans can help you build equity quickly. Equity is the difference between the appraisal value of your home and the amount of money that you owe on it.
For example, if you purchase a fixer-upper home that is potentially worth $150,000 but you only purchase it for $100,000 and it needs just $15,000 in repairs, then you already have built up $35,000 in potential home equity.
Now that you know the advantage of an FHA 203K loan, read about the guidelines that come along with it.