Many people that are interested in purchasing and renovating a previously foreclosed home are turning to 203k renovation loans to help them with the financing for their project. Interest in the loans would probably be even higher than current levels if more people understood what the loans are and how they can be helpful in certain situations. Here is a breakdown of 203k mortgage loans.
What They Are For
203k loans are generally used to purchase or refinance a primary residence and pay for renovations to that property to bring the home up to code and create an aesthetically pleasing appearance. The homes can be purchased from a traditional home seller, a housing agency, a bank, or a government sponsored enterprise, with FHA Homepath mortgage loans also falling under the 203k loan category. Being able to obtain the funds to renovate the property along with the funds to purchase the home means that the renovations can begin immediately, lessening the amount of time that it will take to repair and improve the home.
Features Of The Loan
These types of loans generally have less stringent lending requirements than other types of mortgage loans. The down payment amount for the home can be as little as 3% of the value of the home, but buyers that are willing to put down 20% or more on the home will find the restrictions for the loan are relaxed even further. For a refinancing, the amount obtained through the loan can be up to 97.75% of the value of the home after all of the renovations have been completed. If the home will be unlivable during the renovation period, up to six months of mortgage payments, including principal, insurance, tax and interest, can be added to the amount of the loan so that you have the funds available to make the payments on the new home while still living in and making payments on your old home.
The Loan Process
If you have determined that you would like to obtain a 203k renovation loan, the first step is to meet with a loan specialist to discuss your options. The loan specialist will help with loan application process and provide information about the other professionals that will be involved in the renovation process, including home inspectors, contractors, and consultants. Once all of the necessary documents have been submitted and the loan request has been accepted, a repair escrow account will be set up with funds from the loan to pay for the renovations as they are completed. Renovations must begin within 30 days of the closing date of the loan.