203k mortgage
The FHA 203k is a sister product to the FHA loan. While the FHA loan is used to buy or refinance a home, the 203k product is used to buy an existing property and also make repairs and improvements to the property. This loan basically allows the homebuyer to borrow more money than the asking price and use the extra funds for the work on the home.
Advantages
People who locate a good home in need of repair can now buy the home and finance the repair costs in one loan. This is an ideal situation for acquiring a fixer-upper that is located in a desirable part of town.
The rates used for the FHA 203k loan are very close to the rates used for a typical FHA mortgage.
Sellers who are trying to get rid of a home in need of major
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repairs now have the option of lowering the price and deferring the repairs to the buyer. Basics of the Loan For qualifying borrowers, the same guidelines for a typical FHA loan are used for the FHA 203k program. The need for a 3.5% down payment, loan limitations, lenient credit qualifications and proof of income are all applied and used in the exact same manner. Borrowers may still receive a gift for the down payment and the seller is allowed to pay closing costs. Side note: Qualifying for a FHA 203k loan is the same as qualifying for a normal FHA loan The main difference comes when the underwriters look at the appraisal. The appraiser will need to provide two values for the prospective property • The value of the home in its current condition • The expected value of the home after the intended repairs and innovations are made The underwriter will combine the amount needed to purchase the home along with the amount needed for repairs and improvements to come up with one total loan amount. The borrower will be qualified for the mortgage based on the total loan amount and corresponding loan payment. The mortgage interest rates for the FHA 203k loan are very close to the rates used for a typical FHA mortgage. In addition, the same guidelines for mortgage insurance apply to the FHA 203k loan. Eligible Properties The property must be a single family home, a duplex, a triplex or a four unit home. The property’s construction must have ended at least 12 months ago. Any of the previously mentioned multiple-unit homes can be converted to a single family home. Conversely, a single family home can be converted to a duplex or triplex or a four-unit home. In all of the situations mentioned above the borrower must live in the property as their main residence. For multi-unit properties all the units must be connected. If a home has been demolished, the property is eligible for a 203k loan if at least a section of the original foundation is still intact. An existing home can be purchased and then moved to a different location. Condos can be eligible if the condo complex is FHA approved. Co-op homes are not eligible for the loan and neither are manufactured homes. Side Note: Most any existing property will be eligible for the FHA 203k loan with the exception of manufactured homes and Co-op homes. Working with a Contractor When buying a home under the FHA 203k program the use of a licensed contractor will be necessary. The contractor will visit the home, likely with the appraiser, and make several notes. It is the responsibility of the contractor to provide a written plan of all the repairs and improvements to be made along with the associated costs. The contractor will need to have licenses and be bonded for the specific work that is being done to the home. The contractor will also need to agree in writing that the work outlined in the estimate will be finished for the stated price and in the stated time period. FHA 203k Streamlined As the name implies, the FHA 203k Streamlined mortgage is designed with less paperwork and less restrictions on the loan. The borrower is allowed to receive a maximum of $35,000 over the purchase price to make repairs and minor renovations. The intent of the Streamlined version of the mortgage is for homes that need only cosmetic improvements. To illustrate this point, the following list indicates the type of repairs and improvements that are allowed under the FHA 203k Streamline loan • Fix or replace the entire HVAC system • Fix or replace the carpeting, hardwood or other floor coverings • Paint the exterior as well as the interior • Fix or replace gutters as well as the downspouts • Fix or replace the roof • Improve insulation by adding storm windows, roof insulation, storm doors and weather stripping • Fix or replace any plumbing problem • Fix or replace any electrical problem • Minor remodel to a kitchen, bathroom or other room so long as the structure is not modified • Improve or add accessibility for disabled people • Waterproof the basement • Purchase as well as install new appliances. This can include dishwasher, refrigerator, washer, dryer, microwave oven and stove • Repair existing patio, deck or porch. Any of these can also be replaced. • Repair or replace a defective septic system • Remodel or refinish a basement so long as no structural repair is made • Repair or replace doors and windows Side note; The FHA 203k Streamlined loan is designed for small repairs and replacements that basically only affect the look of the home To be clear, there are certain items that are not permitted under the FHA 203k Streamline loan.
The following items will not be approved:
• Repair to any damage of the structure of the home
• Major remodeling to the property
• Any repair that will require more than 6 consecutive months of work to complete
• New Construction ( adding on a room)
• Any type of repair that requires an architectural exhibit
• Any landscape improvement
FHA 203k Standard
If a borrower finds a property that needs major work done to the structure of the home then they will need to use the FHA 203k Standard product. This loan will allow the borrower to exceed the $35,000 cap from the 203k streamline. In fact, there is no maximum amount for the repairs at all. Only the loan amount is subject to a maximum restriction.
The following list represents items that are allowed for the 203k Standard mortgage
• All of the items that are allowed under the Streamline loan are allowed under the Standard loan
• Replace all of the existing plumbing
• Any repair or even an alteration to the structure of the home
• Add on a room or a garage
• Add a new attached unit (example; turn a single family home into a duplex)
• Install a new septic tank and accompanying plumbing lines
• Improve or modify the
landscaping • Make minor repairs to an existing swimming pool • Make any type of improvement to the home that is a permanent fixture to the home Any item that is considered a luxury, such as a new swimming pool, a new Gazebo, a new BBQ or a new Spa are not allowed on either the FHA 203k Streamlined or Standard mortgage. Side note; The FHA 203k Standard loan is designed for major structural repairs and improvements as well as room additions Loan Consultant If a borrower chooses to use the FHA 203k Standard mortgage there will be a requirement for a HUD loan consultant to be involved with the mortgage. The role of the loan consultant is quite important. This certified individual will make an initial inspection of the home and compile a report of their findings. After consulting with the appraiser and construction contractor the consultant will then prepare a Feasibility Study of the necessary repairs. After the loan is approved and closed the consultant’s job is not done. During the construction and repair phase the money will be disbursed to the contractor on a draw basis. It is the consultant’s responsibility to inspect the progress of the work and approve the contractor’s request for draws. When all of the work is complete the consultant will also need to inspect the home to insure that all the planned improvements and repairs have been made. In essence, the consultant is a supervisor over the contractor to insure the correct work is recommended and then to follow up and make sure the work is completed. Side Note: The FHA 203k loan consultant is there to protect the borrower and make sure work is done correctly and on time. Contingency Plan Along with the responsibilities mentioned above, the loan consultant is also responsible for developing the contingency amount for the 203k loan. The contingency is designed as a cushion for the borrower to make sure there is enough money to complete the necessary repairs. The contingency will need to be 10% up to 20% of the total loan amount. If the home is more than 30 years in age, the contingency should be 10% at a minimum. If the utilities are not turned on then the contingency should be 15% since the electrical and plumbing systems cannot be fully tested beforehand. If the contractor’s costs go above the estimated price, the contingency will be used to pay for the overage. In addition, if there are changes needed after the loan is closed the contingency will pay for the changes. Side Note: The FHA 203k loan uses a contingency reserve to protect the borrower against unforeseen costs of repair. Closing the Loan When the loan has been approved by the underwriter it is time to sign the documents and close the loan. At this time an escrow account will be set up. The money needed for the repairs and improvements will be placed in to the escrow. The contractor is not paid money up front. A maximum of 5 inspections will be done during the duration of the work. At each inspection the contract can request a draw. As long as the loan consultant agrees with the contractor then the draw will be disbursed from the escrow account. Once all the work is completed and the home has been inspected for a final time, any remaining funds due to the contractor will be paid from the escrow account. It is at this time that the homeowner can move in and take possession of their new property.
A major funding agency that home buyers should take advantage of is the Federal Housing Administration, also known as the FHA. FHA provides mortgage insurance on housing loans that are funded by FHA approved lenders. The FHA will insure loans on single and multifamily homes located within the U.S. and its territories. The Federal Housing Administration is known worldwide for being the largest insurer for residential loans.
Loans between $25,000 and $50,000 - base rate plus 3.25 percent or base rate plus 3.75 percent.
Likewise, Andra C. Grant says, “Between 1929 and 1932, home prices in New York fell an average of 50% and the unemployment rate rose substantially. As a result, many residential mortgages were at serious risk of foreclosure. Lenders in the 1930s faced substantial incentives to avoid foreclosure” (Grant). Most Americans couldn’t afford to buy a home prior to this downfall. The down payment was 80% upfront, and people only had five to seven years to pay the remaining amount (“How Did the FHA Help End the Great Depression?”). However, in 1934 a reform called the Federal Housing Administration uprooted. (“How Did the FHA Help End the Great Depression?”). It helped recreate the failing housing market. It is known for lowering down payments, creating a longer loan period, and introducing the idea of paying interest over time and loan standards (“How Did the FHA Help End the Great Depression?”). Through solving the housing problems, the Federal Housing Administration helped get America back on its
Collateral for the defaulted loan. Distressed real estate involves making a distressed purchase. According to Financial Crisis (2011), “[A] distressed purchase is whereby the property owners are usually in a foreclosure/short sale situation.” Foreclosure applies to a residential real estate loan in which a bank or creditor repossesses a home because of nonpayment. The institution will legally possess the right to resell the property as collateral for the defaulted loan. The selling price can be sold at a price equal to or greater than the original loan. The reason distressed properties can be bought at a lower price is the institution has already received a series of payments toward the original home loan. In many situations the lender can sell the house for a lower cost than the normal market value, leaving the buyer the opportunity to make a purchase at a lower selling price than market value and reselling the property at a profit (Demand Media, 2011).
An FHA mortgage now requires that PMI be paid for the life of the loan and the only way to have that requirement cancelled is to refinance the loan. According to the FHA 's new policy, you will have to make two PMI payments on all FHA loans. The first one is the upfront payment which is 1.75% of the mortgage amount. The second PMI requirement is that you will have to pay the annual PMI premium as well, which can be paid in monthly installments and is based on the length of your loan, the amount you borrowed and the original loan-to-value-ratio of the
...ional. In addition, some of the money will be needed to hire a home inspector before the house is put on the market. The cost of this service varies but it can be paid for with the money from the emergency fund if the home inspector has to make multiple trips to iron out problem areas within the house.
The second type of loan has an adjustable rate. These rates are often unpredictable, and even though the initial monthly rates might appear to be lower than with fixed rate mortgages, rest assured, you won’t be paying less in the long-run. When deciding what you can afford, make sure you inform yourself about just how much interest you’ll be paying on your house. The long-term costs of a mortgage can be astonishingly high, so plan carefully. You can also ask brokers to give you figures in dollars instead of percentages, as it will be easier for you to perceive just how much you’re pulling out of your pocket.... ...
Although their mortgage rates are reasonable, other companies may have better rates available for specific customers. However, for customers with credit issues, Primerica's policies are right in line for these clients as well as clients looking to invest in and develop a portfolio the "middle market". For these customers, Primerica is a perfect place to begin. However, if you are a relatively well-off investor, Primerica would not be a good recommendation as again, this is not their target
Butler Lumber Co. should take the short term loan and if necessary roll the $157,000 trade credit into it.
Buying a home can be an exciting experience for anyone. However, in some cases you just might be better off continuing to rent your home. There are many advantages to buying a home. However, it is not for everyone and buying varies from individual to individual. Currently more people are leaning towards renting but this could change in the near future.
The housing boom created an illusion of ever increasing home equity. It was difficult to walk away from potential homes that seemed good on the surface, but in reality were either money pits or less than desirable. For the uninitiated, making sense out of the chaos when things start to go wrong is an emotional process that lends itself to the gradual disposal of the rose-colored glasses. The upkeep and maintenance that homeownership requires of the inexperienced homeowner, particularly an older home, is comparable to taking on a new entry-level job with diminishing returns. There is a prevailing chaos amid the turmoil of a broken water pipe during a holiday weekend.
i.e. 8 years after closing of the loan and 6 years after funding of the loan
First off the United States economy, in general, needs to improve. Economy is like a domino effect, and now it is hitting the housing industry. Our unemployment rate is up to about 10%. Banks are not prospering like in the past. Tons of Americans are in debt; by the end of 2008 Americans reached a $972.73 billion debt due to credit cards.
At the state level, the Iowa Finance Authority, the largest federal block grant, runs the HOME Investment Partnerships Program. This program is run in multiple states, under HUD, and is used to issue grants, direct loans, rental assistance and assist with s...
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