How is a 203K loan different than a regular loan?

Ready to own your dream home? But your dream homes is currently less than dreamy? Thinking 203K loan? Think 203K loan!

The 203K loan which was created by the US Government to help home owners buy a home with little money down while financing enough money to rehab and improve the home, is a great opportunity for many today.

A 203K loan is a type of a FHA home loan. Currently the down payment required for a FHA loan is only 3.5% and that money can even be gifted.

The difference between a standard FHA loan and a 203K home loan is that with the 203K loan the home owner is able to obtain financing on qualified repairs. At the time of the loan it is determined what improvements the home is going to receive and who is going to do the work. The value of the home after the repairs is also determined, making is so the home owner can have the exact home of their dreams for only 3.5% down payment.

The Department of Housing and Urban Development (HUD) says, Most mortgage financing plans provide only permanent financing. That is, the lender will not usually close the loan and release the mortgage proceeds unless the condition and value of the property provide adequate loan security. When rehabilitation is involved, this means that a lender typically requires the improvements to be finished before a long-term mortgage is made.

When a homebuyer wants to purchase a house in need of repair or modernization, the homebuyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods. The Section 203(k) program was designed to address this situation. The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property. To provide funds for the rehabilitation, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work. To minimize the risk to the mortgage lender, the mortgage loan (the maximum allowable amount) is eligible for endorsement by HUD as soon as the mortgage proceeds are disbursed and a rehabilitation escrow account is established. At this point the lender has a fully-insured mortgage loan.

If you would like more information about a 203K loan or would like to know how to get the process started, call Dawn Workman with Veracity Real Estate Group. She is a 203K Specialist and is able to help you with the entire process.

Dawn Workman, MBA, Realtor, 203K Specialist

480-540-8100

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