The Federal Housing Administration (FHA), part of United States Department of Housing and Urban Development (HUD), will provide Mortgage Insurance on loans that meet their Credit Guidelines so that Private Lenders can make first mortgage loans to Borrowers. One such loan program is the FHA 203K Renovation loan.
A 203K loan will allow you to purchase your home and make most renovations you feel necessary. At closing, the Seller will be paid in full and Freedom will hold the construction money in escrow. Your contractor will be paid from escrow upon completion of work. Typically, the contractor will be paid in draws – after a percentage of work is completed and signed off by an inspector. Prior to each draw, an inspector will review the work for completeness and the Title Company will update the Title Policy to make sure it’s clear of any liens.
Repairs must be greater than $5,000 and your home will be appraised on as completed basis, factoring in your renovations.
The loan amount will cover the purchase price of the home plus the cost of the renovations and must be under the FHA Loan limit. This limit is determined by HUD and is set at the county level.
An FHA approved Consultant will work with you to create a “work write-up”. The write up will contain information on what repairs you are doing to the property and the estimated cost of said epairs. This write-up can be used in your Contractor bid process.
You will work with both a consultant and contractor both of which must meet the lender minimum set of standards.
The Mortgage Network of Ohio, Inc. will underwrite your loan and approve you for a final loan balance that will cover the purchase price, total rehab cost and contingency reserve.
Your down payment must be a minimum of 3.5% of the Purchase Price + Total Rehab amount.
The FHA 203K loan program is great way to purchase your home and make renovations all with the convenience of one loan and with a minimum down payment of 3.5%.