What is a 203K Loan?
Is your home in need of renovations and repairs? A 203K loan could be your answer! A 203K loan is a home improvement loan that allows borrowers to finance the cost of repairs or improvements on their home. It’s typically used for projects that will increase the property’s value and/or improve its energy efficiency. It is considered to be more advantageous than other types of loans because it requires a smaller down payment unless combined with a down payment assistance product.
You’ll want to consider the price of home renovations when you start thinking about financing. Home renovation costs vary depending on the size of the house, the location, and the type of renovation. For example, a typical kitchen renovation in a suburban home starts at $20,000 but can go as high as $70,000 for granite countertops and other custom features. A bathroom remodel in an older home averages from $10,000 to $20,000, while a basic exterior paint job is about $5,000 to $6,500 for most houses.The 203K loan has some distinct advantages over other types of loans. One advantage is that it will allow you to borrow more money than other types of loans. Another advantage is that the 203K allows you to borrow money based on the future value of your home, allowing you to amortize the cost of the repairs and upgrades into your investment.
There are certain eligibility requirements for this type of loan such as having sufficient funds to pay off the new mortgage and any other debts incurred during the purchase process. With the standard 203k loan, you have the ability to get just one loan for the cost of your mortgage, along with the required repairs. Repair types allowed: Major rehabilitation and/or structural repair. When doing an FHA 203k streamline, you will have two draws: one where the lender will release 35-50% upfront and 50% when the work is completed. Most of the time, the lender will require a final inspection before the final disbursement.
Qualifying for a 203k loan does come with challenges, but it is possible with a plan. You just need to know what you’re doing and follow the guidelines set by the government. The first step to qualify for a 203k loan is to find out if your property qualifies.
Want to know how to qualify? Reach out to a MasonMac loan officer.