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If you are interested in purchasing a fixer-upper home as your primary residence, you may want to consider applying for the FHA’s 203k home loan program. These loans are administered by the US Department of Housing and Urban Development and are available to any homebuyer that meets the minimum requirements for the program. Here are some things that you should know about 203k HUD loans.
What Are 203k Loans For?
203k loans are ideal for purchasing homes that are not in the best of condition. There are always homes available on the market that were not maintained by the homeowners, were trashed by renters, or have fallen into disrepair while vacant. 203k loans allow you to obtain a mortgage on the property plus additional funds to fix up the property and return it to habitable condition. This way, the cost of rehabbing the home is spread out over the entire term of the mortgage loan.
There are two types of 203k mortgages available: regular loans for properties that need structural repairs and streamlined loans for those that need only non-structural repairs. For the regular loan, the maximum mortgage amount is 110% of the expected value of the property after it has been rehabbed. The streamlined loan allows the buyer to add a maximum of $35,000 to the purchase price to pay for any improvements that will be made to the home.
Using The 203k Loan
Because these loans are endorsed by the government, lenders are more likely to issue these loans to qualified buyers. Often called Homepath renovation loans, they can be used to purchase and rehab a wide variety of private residences, including single family homes, condominiums, multiple family dwellings up to four units, and moving an existing home to a new foundation. There are certain types of repairs that can be paid for with these loans, but luxury upgrades, such as installing a pool or a hot tub, are prohibited from being paid for with the program.
In order to qualify for a 203k loan, the homebuyer must meet certain criteria. The buyer must have a steady, verifiable income and a credit score of at least 600. The buyer is required to put down at least 3.5% of the value of the home price and repairs as a down payment on the home. According to the FHA, “All persons who can make the monthly mortgage payments are eligible to apply” for a 203k loan.
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