The Federal Housing Administration’s 203k Loan enables people to borrow finance for ownership and improvement of a home in a single loan. This type of finance is insured by the FHA, which will enable the borrower to keep the interest rate at a lower level. Some of the basic information about this type of loan is discussed in the content given below:
This loan would be of great use to people in the United States to purchase a home or refinance a property that requires some work. This type of financing is otherwise called as fixer or rehab finance and it offers funds not only for purchase of new homes, but also for home improvement projects as well. Rather than obtaining two loans, the borrower can bring everything together under one loan. Some of the benefits that can be acquired by a borrower from this type of financing are discussed below:
Instead of two different loans for home improvement and home purchase the borrower can get both these finances under a single type loan, the paperwork and cost will be greatly minimized for the borrower. Because this loan is offered with a competitive rate of interest, it makes it possible for the borrower to get the amount of funding that they need at a reasonable payment. Now, let us understand about how this type of financing works:
FHA 203k Loan is designed for single to four unit properties; however, townhome owners and condo owners can make use of the program for meeting their interior designing project requirements. The maximum amount offered depends on the location of the borrower and FHA enables up to 110% of the projected value of the property after improvement. Even though the least value of finance is $5000, the streamline FHA permits the borrower to do smaller projects that involve easier processes. When it comes to improvement projects, funds are allocated to an escrow account and the money is paid out as the work gets completed. Any additional funds left over are then applied to the principle loan unless otherwise specified.
It is compulsory that the work must be completed within six months of closing and there will be padding put into the cost of the project in case it reaches more than the expected amount. However, keep in mind that once that excess is used the borrower can’t get any more extra funds so budget wisely. This is why it is better to work with a reputable contractor, who can offer accurate estimates. Terms can range from 15 to 30 years and interest rates in this type of lending are a little bit more as compared to traditional FHA loans. This type of loan is not available to investors currently but some lending sources can offer them to non-profit organizations and of course all owner occupants so take advantage.