Asha Kiran

Posts Tagged ‘Temporary Loan’

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.