Asha Kiran

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The FHA 203K loan is insured by the Federal Housing Administration. Before this program came about, you are required to obtain a temporary loan for buying a home and another separate loan for home repairs. Completion of the repairs is required so you can obtain permanent financing for your improved home.

The Basics of FHA 203K Loan

The FHA 203K loan was originally designed to simplify the process of purchasing a house that needs repairs. To get the funds for repairs, you will get an amount based on the future appraised value of your home. It means that the value added to the house due to the repairs will be considered to calculate the current value. You can get as much as $35,000 financing in order to cover the necessary repair costs.

Your chosen contractors who will repair the home will be able to get the money in two draws. The first draw covers 50 percent of the work and this will be disbursed at the start of the repair. The other 50 percent will be disbursed after the repairs have been completed.

The repairs must be started within 30 days after the loan has been closed. The project should be completed within 6 months. You have to determine the final amount that should be given to the contractors before the loan closes. Therefore, you must get the necessary bids from the contractors for materials and labor costs. You can implement the repairs as long as you are a licensed and bonded contractor.

Types of Repairs Covered by FHA 203K

There are several types of home repairs and improvement that can be covered by FHA 203K loan. These include roof replacement, kitchen remodeling, plumbing and electrical work, renovations for accessibility, house painting, and appliance purchases.

Cosmetic repairs and beautifications are covered by the loan. However, luxury purchases and upgrades are not permitted. You have to take note that funds needed to repair detached structures will not be included in the loan. These structures may include sheds, gazebos, and swimming pool.

How to Qualify for FHA 203K Loan

FHA 203K and other existing FHA home loans have similar eligibility requirements. You can qualify on the basis of your credit and income. Most important of all, the property must be FHA approved.

As a rule of thumb, the monthly repayment amount must not exceed 41 percent of your regular monthly income. You must also have a minimum of 620 credit score which is required by most lenders. Eligible homes include FHA-approved condos, planned urban development homes, sand 1-4 unit houses. You can get this financing if the home has been constructed at least one year prior to application.

You can enjoy great benefits from FHA 203K loan. The loan can be used to rehabilitate your property. It is also used for renovating foreclosed homes and properties.

The FHA 203K loan is a type of financing that is insured by the Federal Housing Administration. It is a unique type of financing that allows homeowners to obtain both a purchase loan and rehabilitation financing in the same transaction. Before this transcendent loan program, a homeowner had to obtain an initial, temporary loan to purchase the home and a separate rehabilitation home loan to make any necessary repairs. Only after the repairs were complete could the homeowner gain permanent financing for their newly improved home.

FHA 203K: How does it work?
The FHA 203K loan was designed to streamline the process of buying a home in need of repairs. In order to provide funds for the repairs, the loan amount is based on an expected future appraised value that takes into consideration how much value the completed repairs will add to the current value. Up to $35,000 over the purchase price of the home can be financed into the loan to cover the cost of repairs.

The contractors chosen by the borrower to do the repairs will receive the money for their work in two draws. One draw is for 50% of the work and is disbursed at the beginning of the repairs while the remaining 50% will be disbursed after the work is completed. The repairs must begin within thirty days of the closing of the loan and must be completed within six months. The amount paid to the contractor(s) must be determined before the loan closes by obtaining written bids on material and labor costs. The homeowner can do the work himself provided that he is a licensed and bonded contractor.

What types of repairs will the FHA 203K cover?
Some of the repairs eligible to be completed with the funds from an FHA 203k loan include: roof replacement, electrical or plumbing work, kitchen remodeling, accessibility renovations, appliance purchases, and painting. Although many cosmetic renovations are allowed, luxury items and upgrades are not permitted. Also, any funds needed to repair to any detached structures, like sheds, swimming pools, and gazebos, may not be included in this loan amount.

FHA 203K: Qualifications
The FHA 203K program has the same types of eligibility requirements that exist on any FHA home loan. A homeowner must qualify on the basis of both credit and income to be eligible and the property must be FHA approved. As a general rule, the monthly mortgage payment cannot exceed 41% of the borrower’s monthly income and most lenders require at least a 620 credit score. Homes that qualify include: FHA-approved condos, 1-4 unit homes, and planned urban development homes (PUDs). The construction of the home must have been completed at least one year prior to financing in order for the home to qualify.

The FHA 203K program can be a great tool for any homeowner looking to renovate or repair his or her home. In a housing market that has seen foreclosures reach record highs, the FHA 203k loan can not only provide potential home owners with more opportunities to purchase a home, but can also help rebuild the housing market by facilitating the rehabilitation of foreclosed properties.

The federal government of United States of America announced a couple of mortgage reduction programs in March 2010. This is yet another effort by the Federal Government to help with monthly loan payments of home owners who find it difficult to meet these payments in time. This plan is an extension and improvement in existing government mortgage help plans, making one wonder whether this program will be effective where others have failed. Let’s have a look at the program briefly and identify the target groups.

The Aim Of The Mortgage Reduction Programs Is To Target Two Groups:

* The first group to benefit from government help with mortgages is that of home owners who owe more to the banks as mortgages than the value of their house/property. Some estimates put the number of such households at more than 15 million. Out of the 15 million, 10 million owe more than 20% of the current value of their house.

* The second target group to receive government help with mortgage payments is that of borrowers who are unemployed. They are the main focus group for government mortgage help. The program involves giving lenders incentives to find lower monthly mortgage payments by up to 31% of the borrower’s income.

The New Government Help Plans Are:

Home Affordable Refinance

The government will give financial aid to mortgage providers or lending companies so they can give relief to mortgagees by reducing the amount they have to pay. After reducing the amount and making it reflective of the current value of the house, if they still owe to the lending companies they can refinance their loan with aid from the Federal Housing Administration.

In this program, the mortgage can be refinanced into a loan with fixed long term rate (15 to 30 years). The refinancing is available even if the value of the house has reduced and now the amount owed is more than the current value of the house. The new rate takes into consideration the mortgage history and repayment history of the borrower and is reflective of the current rate at the time of refinancing.

Home Affordable Modification

The second mortgage reduction program is targeted at unemployed or low income earners providing them some relief from paying their installments. It can reduce the home owner’s monthly repayment to as low as 31% of the owner’s monthly income. The Government help with mortgage involves voluntary lender participation initially but once the Government starts paying the lender, participation becomes compulsory. There are no fees in government mortgage reduction programs. The institutions involved in this program (lending institutions) are expected to consider any other loan a borrower may be willing to discuss for this government help.

The cost of living is steadily on the rise and defaults on loans have become a common phenomenon. These mortgage reduction programs of the government aimed at lessening the burden on the homeowners will not only benefit borrowers but also boost the failing housing sector. The previous failure of such attempts of the government to help with mortgage payments may not bode well for these new plans but in the present scenario they do seem like a boon to borrowers who are bending backwards to be able to honor their debts.

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