If you find a home you really love but it needs some work to be everything you need from a new house, there are options you can consider. One of the best choices is the FHA 203k program, which allows you to purchase a home that needs work and use one mortgage to pay for the home and the work that needs to be done. It’s much easier than trying to get separate loans for the home purchase and the rehab, especially since some lenders will not loan money on a home if it is not in livable conditions at the time the loan closes.
FHA 203k Requirements and Your Property
In order to be eligible for the 203k program, there are 203k loan requirements that your property has to meet. It has to be a dwelling that is designed for between one and four families, and it must be used strictly for residential purposes. You cannot buy a 20-unit apartment building and rehab it with a 203k loan. You also cannot buy a commercial property with the loan. If you are not going to be living in the home, or living in one of the units of a dwelling designed for up to four families, your property is not going to be 203k eligible.
Your property also has to be in need of work. It is not possible to get around the FHA 203k guidelines by saying you are going to work on the property, but actually using the extra money for something else. In fact, if your rehab is more than $35,000, you will have to get a contractor to do the work, and that contractor’s bid will have to be submitted to the bank as part of getting your loan approval. Even if you plan to come in under the 203k loan limits for contractor-completed work and a specific rehab plan, the FHA will still carefully scrutinize your loan and your property to make sure the qualifications for the loan are met. Learn more about FHA 203k loan requirements from Prospect Mortgage, so you can get started on finding your dream home today.
You Must Be Eligible, Along With Your Property
Even if you find the perfect property for your needs and one that completely meets the FHA requirements for the 203k rehab loan—it’s only a part of what is needed. You still have to meet the FHA home requirements or you will not be able to get the loan. FHA eligibility is determined by several factors, but one of the most important is your credit score. If you cannot meet the FHA 203k loan credit requirements, or other FHA eligibility requirements, you will not be able to get the loan you are hoping for. Fortunately, the FHA often allows lower credit scores than what would be accepted by other lenders, giving those with credit trouble some options.
First-time home buyers are also eligible for the program. You are considered a first-time buyer if you haven’t owned a home in the last three years, even if you owned a home before that. With the opportunity to be a first-time buyer, there are many loan choices open to you that you might not otherwise have. That is a very important consideration when you are choosing a home loan, because you want to get the best loan package for your needs and goals. The FHA rehab loan can be an excellent choice for people (and properties) that qualify since it is easier to get than many other types of loans, and it also comes with a good interest rate.
When you are ready to apply for a 203k loan from the FHA, it is important that you work with a lender who has experience handling those types of loans to make the process as smooth and stress-free as possible. Then you can get the work done, get moved in, and start enjoying your great new home.
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