Using the FHA 203k Loan for Home Improvements
Sometimes a homeowner is caught in a bind between needing to renovate a home and not having enough home equity to fund the project. In this situation, an FHA home improvement loan may be the solution. HUD steps in with recognition the community benefits from have the home fixed up but financial circumstances prevent a typical renovation project. The home improvement mortgage loan can be especially useful when buying a less expensive home in need of extensive structural and cosmetic repairs. Because it’s a government funded loan, an experienced broker such as Prospect Mortgage may be helpful in filling out the paperwork and assuring the loan goes through as quickly and efficiently as possible.
Purpose of the Loan
The purpose of HUD home improvement loans is much the same as a regular home loan, to help people buy a home for themselves and their family at a reasonable rate that is more affordable than a traditional bank mortgage. The additional purpose of the 203k loan is that it promotes the rehab of older homes to add value to the community while allowing someone to buy a house they couldn’t otherwise afford.
Difference Between Streamline K, Consultant K and Title I Loans
There are different types of FHA home improvement loans that are similar but should be considered as how the meet specific circumstances. The Streamline K is the most common; it addresses problems in which the cost is over $5,000 and under $35,000. Therefore, it typically is used when a large number of minor repairs are needed. For more extensive repairs including heavy structural rebuilding or a home addition, the Consultant K loan is applicable to cover the additional expenses. Each of these loans for a multi-family home with up to four apartments.
The Title I loan is useable for repairs on manufactured homes with or without a permanent foundation, single family houses or multi-family structures. Depending on the type of home, the loan can max out between $7,500 up to $60,000 and has a payback period from 12-20 years. The loan is backed by an existing mortgage or deed of trust for the property to be renovated.
Typically any single family home or multi-family structure with four units or less will qualify according to standards for credit that apply to typical HUD home loan requests. The home itself or a line of bank credit can be used to secure the loan. If the property has mixed use, the bulk of the square footage has to be used residentially while the percentage of allowed commercial usage can vary according to the specific situation.
Types of Improvements that Qualify
The 203k loan has a minimum of $5,000 and only certain repairs qualify for the minimum loan, although other repairs can be made after using the first $5,000. Typical qualifying jobs would be elimination of health and safety hazards or addition of handicap access, new air conditioning and HVAC systems, installation of septic systems or connection to public utilities, and new roofing and gutter system. Cosmetic repairs might include new siding or additions such as a covered porch, dormers or an attached garage.
The 203k home improvement mortgage loan can be difficult to understand in detail. The requirements are not difficult to fulfill, but can require an expert to understand all the specific details and assure the loan goes through with a minimal of time and trouble. Professionals such as the loan officers at Prospect Mortgage are familiar with the home improvement loan process and can be a useful resource toward making sure all the paperwork is filled out properly and the criteria of the loan are fulfilled before applying. Although the process can be intimidating to start, most homeowners are happy with the results after the process is finished and their home is renovated.