An FHA 203K loan allows a home buyer to compete with the real estate investor. This loan allows for repairs to a property that generally would not qualify for financing due to property condition. This is a very popular loan for the budget conscious home buyer in New Jersey.
There are 2 types of FHA 203K loans. The full “K” and streamline “K.”
A property that needs structural repairs or repairs exceeding $35,000 will require a full 203K loan. It is best to use a certified HUD plans consultant for cost estimates of your desired work. A HUD consultant will make the paperwork a lot easier. The average contractor may not be familiar with the required documentation. Using a HUD consultant allows for a smoother flow. The consultant will not do the repair work. They will do the detailed cost estimate. The estimate will be based upon what you want done. You are allowed to renovate, carpet, paint, add new appliances, etc.
Streamline FHA 203K’s are best if the required work is $35,000 or less and no structural repairs are necessary. The contractor will usually prepare the estimate on this loan. The paperwork is less detailed so it can easily be done without a HUD plan consultant. Up to $8,000 of energy efficient improvements may be added to any 203K loan.
A full FHA 203k and a Streamline 203K will allow you to use multiple contractors or one general contractor. You will chose your contractors. You should compare prices and the quality of their work. You may choose one contractor that specializes in flooring and another that is a licensed electrician. This is allowed but detailed written estimates must be obtained from each contractor.
This is the normal process flow:
1) Find a home.
2) Make an offer.
3) The offer is accepted.
4) Choose your contractors and get written work estimates. A HUD plan consultant may also prepare the estimates.
5) The contract and repair estimates are delivered to a qualified 203K lending specialist.
6) A mortgage application is prepared.
7) The work estimates are forwarded to the appraiser. The appraiser will prepare an appraisal with a value “subject to” the desired work.
8) The loan is approved.
9) The loan closed and seller is paid. You become the new homeowner.
10) Work begins.
The contractor has up to 6 month to complete the necessary repairs. They will be paid in as the work is done and inspected.
A 203K loan has a provision where you may remain in your current residence with no mortgage payments due if the new property is not habitable. This allows the contractor to complete the necessary work without a strain on your budget.
An FHA 203K loan is a fantastic way for you to take advantage of a great deal on a distressed property.