Details on the FHA 203(k) Rehab Mortgage
That isn't an ideal situation for a borrower trying to balance a budget, pay the mortgage on time and improve the property.
Fortunately, there's an FHA loan that can help--the 203(k) loan program provides qualified borrowers with an FHA guaranteed loan for rehab homes. This loan is for those who want to live on the property to be improved as the primary residence, it's not meant for landlords or investors.
FHA 203(k) loans feature a 3.5% minimum down payment, just like other FHA mortgages, but 203(k) loans have some different requirements due to the fixer-upper nature of the property to be purchased.
According to the FHA official site unlike a typical FHA loan purchase for a suburban home or a condominium, 203(k) borrowers must draw up a sales contract after "doing a feasibility analysis of the property with their real estate professional. The contract should state that the buyer is seeking a 203(k) loan and that the contract is contingent on loan approval based on additional required repairs by the FHA or the lender."
When filling out the FHA loan application the borrower must also submit a cost estimate for each repair or set of improvements to the property. The FHA appraisal process is different, too-an FHA appraiser in this case will look at the property and determine the fair market value AFTER the renovations are complete.
This is different than for standard FHA appraisals where a property is viewed as-is and judged accordingly. For a 203(k) loan, the fixer-upper aspects of a property that might not live up to FHA minimum property requirements would be spelled out in the analysis and repair cost estimate.
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