FHA 203k mortgage: a loan to buy and repair a distressed home

Have you ever heard of a home buyer rehab loan?
Many potential buyers don’t realize that they can get a lot more home for their money buying distressed property with a 203K loan.

The FHA 203K loan simply includes the cost of rehabbing a distressed property in the total home mortgage.

The value of using an FHA 203k loan, explained in simple terms, is as follows:

When someone buys a move-in-ready home, they are most likely paying fair market value for this home. If they apply for an FHA loan, their down payment will be 2.5%. Any alterations they wish to make to make the home “theirs”, such as changing the kitchen or bathrooms, will be an additional cost after the sale and this cost will be borne by the buyer.

For example, a person buys a move-in ready home at its fair market value of $ 400,000.
A similar house in the same neighborhood is also for sale, but this house is run-down and needs to be renovated and repaired. For this reason, the buyer will pay much less for this property, and with an FHA203K loan the buyer will be able to fix and repair the house to the same standard as the first house. Generally, this in total can be done for much less than the cost of the first home, so the struggling new home buyer will have immediate value on the property. This is also known as “sweat equity”.

To explain this, let’s say you paid 80% of the value after repair (80% of $ 400,000), therefore $ 320,000 and the property needs $ 35,000 in rehabilitation and repairs. The FHA 203K loan will allow a loan of $ 355,000 that will cover both the purchase price and the rehabilitation or repairs to bring the home to the same level as the first home, for example, a home with a fair market value of $ 400,000. The added bonus is that you can select your kitchen or other upgrades and tailor them to your liking during the rehab / repair. You now have $ 45,000 equity in the home.

The FHA 203K loan is ideal for financing purchase and repairs / rehab with a single loan, plus all the benefits of an original FHA loan.

The explanation above is a very simplified form of this process and there are strict guidelines that you will need to follow when rehabilitating with an FHA203K loan. Be sure to discuss all of these requirements in advance with your lender.

For help getting a distressed housing listing in Southwest Florida, feel free to visit https://greaterswfl.com/fixer-upper-homes