Benefits of using the FHA 203k Rehab Mortgage Loan Program

Properties listed in the Multiple Listing Service with the following comments "As Is", "Handyman Special", "Fixer Upper", "Rehab", "Rehabilitation Project", "Needs Work", "Contractor Special", or "Requires FHA 203k" probably will not qualify using today's standard mortgage loan programs. To obtain lender financing for these types of houses, The Federal Housing Administration offers the FHA 203k renovation loan program that enables borrowers the financing option to obtain one mortgage loan, one settlement, and one loan payment to purchase a property and create a remodeling or rehab budget to make repairs and renovations after the purchase is completed. By using the streamline or full FHA 203k mortgage loan program your Clients can:

Buy More Home For Less
A house that needs work will sell at a discount compared to a property that is in move-in condition
Over two million foreclosures will be for sale in the next 12 months. A homeowner not making their mortgage payment will defer much need maintenance of the house, thus forcing the bank to discount the property to compensate the new homeowner for the negative overall condition of the house
Houses that need work are usually on the market much longer than a house in move-in condition and receive few purchase offers. As a result the list price of the house is more likely to have been lowered multiple times from the original offer price
The FHA 203k rehabilitation loan is the perfect solution for homeowners that like a neighborhood but can't find a house in an acceptable condition that they can afford
Frequently the majority of FHA 203k loans will have a mortgage amount significantly less than the "after completed value" of the property, which means that the new homeowner has an equity gain when they buy their new house
Make repairs, updates, and additions immediately after the house is purchased
Deficiencies to a property are often identified in the home inspection and appraisal report. As a home buyer you want to know that these items are going to be repaired. Lenders will require items identified in the appraisal report as not conforming to FHA guidelines to be repaired prior to approving the loan. The challenge is that banks that own the house frequently don't want to make the repairs prior to settlement since their is no guaranty that the home buyer will actually purchase the house
The FHA 203k rehab loan establishes a repair budget that guarantees that repairs to the property are made within six months of the buyer purchasing the home, thus satisfying the lenders and FHA requirements regarding the safety condition of the subject property
The FHA 203k allows required repairs to bring the property not only up the minimum lender requirements but also can be used to modernized the house to meet the new homeowners personal requirements regarding livability and design
Home buyers can make repairs to the property right away and finance the repairs over the life of the mortgage. By doing so the repairs aren't put off until the total cost of the repair is saved up or worse being charged to a high interest credit card
More money for repairs. Since the FHA 203k loan allows you to borrower up to 110% of the "after completed value" of the property you can borrower more money for repairs than obtaining a home equity line of credit after you purchase the home
Have their purchase offer receive preference of other offers
The Listing Agent for a house that needs work knows that an offer made that uses traditional FHA, VA, USDA, or Conforming financing will result in deficiencies to the property being identified in the Appraisal Inspection Report
Since lenders won't finance a property that list defects in the Appraisal Inspection Report the seller can either choose to make the required repairs to the property and hope that the buyer actually will end up purchasing the house or choose to not make the repairs to the property and find another home buyer
Often the seller will not make the repairs to a property. Since the home buyer didn't submit their offer based on a FHA 203k rehabilitation loan, which results in the home buyers loan being declined and the purchase offer being terminated by the buyer
To avoid this problem Listing Agents prefer, and may even require, that the offer submitted recognizes that there will be work required by the purchaser of the property
Thus an offer that uses a FHA 203k loan, even if the ask price is less than the list price, often receives preference over an offer that uses traditional financing
Benefit from low down payment, seller paid closing cost allowed, and flexible loan approval
Qualifications for the FHA 203k rehab loan program only require a 3.5% down payment of the purchase price and rehabilitation budget, making this the lowest down payment program of any rehabilitation loan program
The 3.5% down payment can come from flexible sources including gifts from family members, loans against 401k accounts, and grants from certain down payment assistance programs
Seller paid closing cost of 6% of the purchase price can be applied toward lender and settlement fees, transfer and recordation taxes, and even escrows. This means that the home buyer needs less money at the settlement table
The FHA 203k loan requires only a 640 credit score, tolerates a recent Chapter 7 bankruptcy two years or more from the filing date (one year if as a result of a job loss or medical emergency), Chapter 13 bankruptcy immediately upon discharge of the bankruptcy, and even foreclosure three years from the date of the property repossession
Obtain a secure 30 year fixed rate mortgage
FHA is a Federal Government Insured Program designed to protect the homeowner from unfair lending practices. As such the FHA 203k is offered as a secure 30 year fixed rate mortgage in which the interest rate can never change and the principal and interest payment remains the same for the life of the loan
The FHA 203k loan is like two loans wrapped into one. One loan allows you to purchase the house and the second loan is used to make the repairs to the property. Unlike two loans, the borrower only has one fixed payment over the life of the loan, one interest rate, and receives the interest deduction tax benefits by financing the rehabilitation costs into the mortgage
Once the loan is paid down to 78% of the original loan amount the monthly mortgage insurance is no longer required. The mortgage insurance premium must remain in force for at least a five year period
There is no pre-payment penalty on the loan so the loan can be refinanced or closed out at anytime
Make sure when you refer your client to a Lenderto obtain loan pre-approval that the lender has extensive Renovation loan experience
The FHA 203k loan is one of the most complex loan programs available today. Make sure that you work with only a direct lender approved to process both the FHA Streamline and Full 203k loan. Remember just because a lender offers FHA doesn't mean that they also offer the FHA 203k rehabilitation loan or fully understand how to process the loan to ensure you get to the settlement table
When applying for a mortgage loan with a Preferred Lender:
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  • Your online application is secure and encrypted
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  • Receive a $100 discount off your closing costs at settlement when applying online
To determine your eligibility for a mortgage loan call (866) 747-2882 from 8:00 a.m. to 6:00 p.m. Monday – Friday or click here to get started