Know More About 203k Loans

203K loans let the borrower purchase or refinance a fixer upper and finance the required repairs all with a single loan and one monthly mortgage payment.

They are also called Rehab loans and it addresses a common issue when buying a fixer upper home. Normally lenders will not approve loans for homes that need major repairs. But with 203K Loans the lender tracks and verifies repairs and thus willing to approve loan on the homes with major repairs.

Types of 203K loans

1.     Standard 203K loans: The standard 203K loan is designed for a larger and more complex project. It includes landscaping work, structural renovations, and other project where the renovation costs are more than $35,000. These loans are used to finance both structural repairs and functional improvements. For instance you buy a home that need a new roof or HVAC system, 203K loan is a good option to avail. The property is valued to find out its exact worth after renovation. Collaborate with a good HUD 203K consultant who will value the property, assess the proposed work, review contractor’s bid, monitor the progress and sign off on loan proceeds disbursements.

2.     Limited 203K loans: This loan is a simplified version crafted for non-structural renovations. These are for small remodelling projects or updates that will not cost more than $35000. This loan can be availed to make variety of improvements like painting, update appliances and more. This loan does not allow for structural changes and so it is easy to obtain this loan. There is also less paper work and one do not need to hire any 203K consultant.

Requirements of 203K loans

1.      Credit score: The loan allows credit score as low as 580 although some lenders need a score of 620-640 to quality this loan. A much lower than or higher is required for conventional Construction Loans San Diego.

2.      Minimum down payment: A minimum down payment of 3.5% based on the purchase price and total project cost.

3.        Income and debt ratio: The lenders will examine the debt to income ratio by comparing the gross monthly income and the debt repayments of the borrower.

4.        Maximum amount of loan: Maximum one can borrow up to 110% of the proposed value of the property or the home price plus renovation costs, whichever is less.

5.        Occupancy: The borrower must plan live in the property and it is available for US citizens and lawful permanent residents.

Wrap up

It is imperative to collaborate with a good loan consultant who will help you furnish all the formalities of 203K loan.