Understanding 203k Loans and How This Type of Loan Will Benefit You

Many first time home buyers will not be able to find homes that are within their budgets that do not need some type of repair or improvement. Homes that need some TLC can be transformed into dream homes and the cost associated with doing those renovations can be wrapped into a home loan.

What Exactly is a 203k Loan?

The Federal Housing Administration has made available a type of loan known as a 203k loan that makes it possible for include improvement costs in the amount of a home loan. Borrower's can keep interest rates low with this type of financing option also because it is insured by the Federal Housing Association. Home owners can also benefit from 203k loans because this type of loan can be secured for the costs associated with home improvement projects as well. Borrowers who qualify for a 203k loan will have one loan payment instead of two because one loan will accomplish two tasks. The process of applying for a 203k loan is no more burdensome than applying for a typical home loan.

The Documents Necessary to Apply for a 203k Loan

Working with a mortgage broker who is experienced in dealing with FHA loans should be the first step when starting the 203k loan application process. The necessary paperwork required to begin the 203k loan process will include income information and income history.

203k loans must be backed by contractor estimates which clearly show the costs of the renovations. It is imperative that an expert contractor is chosen to perform that work because the estimate amount needs to be as close to the repair costs as possible. 203k loans require that renovation and repair work begin within a certain time after the date of closing. Questions may arise after closing relating to certain aspects of a 203k loan which your mortgage broker will be able to quickly answer. Knowing which type of home loan will be best suited for you can be made clear after meeting with a qualified mortgage broker.

If a home is without of reach for a buyer, a homepath loan might also be a great option. Houses which are available for homepath loans have been repossessed. The cost of repairs can also be wrapped into the loan much like a 203k loan. Depending upon which house and type of loan best suits a borrow, he or she could qualify for either of these loan options to finance repair costs. Also, with both loans the down payment that is required is less than that of a traditional loan.

Applying for a home loan or specific type of loan often comes with stress, but understanding the types of loans which may be available to you will help ease that stress.

In Brief: The 203k Home Loan

Before you can gain an understanding of what a 203k home loan actually is, you need to be introduced to the FHA home loan first. The FHA (Federal Housing Authority) offers home-buying candidates government loans. Since the government guarantees the loan, banks are less hesitant to lend the funds to individuals they would normally deny.

I am not saying that you will be borrowing money straight from our government, and I'm not trying to say that an automatic approval comes with every FHA home loan that is applied for. What I am saying, though, is that your likelihood of getting approved for an FHA loan is better than your chances at a private loan if you are somebody with bad credit. You can even be bankrupt and still get approved for an FHA home loan. One helpful element is the FHA loan's 3.5% down payment, which is about a quarter of a private lender's down payment requirement.

With the basics of an FHA loan covered, we can move on to the sub-categories of this style of loan, such as the several additional FHA loan programs that are available to potential homeowners. These programs can involve a normal fixed-rate mortgage of 30 years, plans of a shorter duration, or other plans with adjustable rates. You can even qualify for refinancing or get a home equity loan also.

Though there are several programs for purchasing homes under the FHA program, the one gaining the most popularity is the 203k loan. 203k loans include the helpful traits of a conventional FHA loan such as flexible credit and low down payments. But the 203k loan offers something unique, and that is its ability to make rehabilitating a house easy, meaning you can borrow to buy or borrow to renovate. Therefore, 203k loans are available to help people buy and rehabilitate preexisting houses or to help people make the renovations necessary to make their current home more livable.

The benefits of a 203k loan can impact an entire community by making their area more beautiful and valuable to all its residents. The new homeowner with a 203k loan will also gain significantly since he'll be able to finally buy his first home and potentially renovate it into his dream house. Due to how unstable the market for housing is these days, and by considering that everything I mentioned earlier is included in a 203k loan, it's a wise decision to look into an FHA program, such as those offered by HomePath Loans in order to buy your first home.

Just think about all of those foreclosed homes that are available on the market and only need a bit of rehabilitation. If you get a 203k loan, you will have to opportunity to buy one of these homes and rehabilitate it into the home you've always longed for.

Home Loans that Make Buying Foreclosed Homes Easier

HomePath loans are a good option for many who want to buy foreclosed homes from Fannie Mae. This special loan type is only available through a few hundred approved lenders in the country, and only on certain properties. For foreclosed homes, this type of home loan has clear advantages.

If you intend to live in the home you're purchasing, you can get a HomePath loan with only three percent down. This type of loan is also available to investors, but they must put at least ten percent down on the property. Your lender won't require mortgage insurance with a HomePath loan, even with a down payment this size. Indeed, you won't need mortgage insurance for any HomePath loan.

HomePath loans don't require property appraisals, which is another one of their clear advantages. It isn't uncommon for conventional loans to be denied due to the appraisal not matching the purchase price and thus, the amount of the loan. HomePath loans don't have this issue. Because the loans are eventually purchased by the entity selling the property, the value of the home is already known to them. This doesn't mean you shouldn't get the home inspected, of course, as you still will want to know what shape the property is in, but you won't have to worry about an appraisal derailing your attempt to purchase the home.

With a HomePath loan, you can also borrow more than the cost of the home if you know you'll need to make repairs. The extra money you borrow -- up to $30,000 above the price of the home itself -- must go to a contractor or other building professional. With a conventional loan, you'll often find that you can't secure a loan for a home that will require repairs to be livable, so if this is the type of house you're looking for, a HomePath loan may be your best choice.

HomePath loans are great for some buyers, but not all of them. To get a HomePath loan, you'll need a better credit score than you would to get a conventional or FHA 203k loan. Although the specific rate will vary based on credit score and down payment size, in general, a HomePath loan will come with a higher interest rate. It's important to remember, though, that without a monthly insurance payment, the higher interest rate may not increase your costs significantly. Often, you'll find that you won't end up paying more, despite the higher rate. Some even end up paying less each month with a HomePath loan than they would with a conventional or FHA loan, despite the higher interest rate.

A Quick Guide to 203K Loans

The "Federal Housing Administration" (FHA) was created in 1934 by the United States government. The agency was created with the three goals of; improving housing conditions and standards, provide a just and proper home financing system through mortgage loans, and to control and stabilize the fluctuating mortgage market. A 203K loan is provided by the FHA, and is also called "fixed" loans, or "rehab" loans. There are two parts of a 203K loan, one part for making home improvements, while another is for buying a new project.

What is considered to be the largest benefit of a 203K loan is that there is only one arrangement for both the home improvement and purchase of a property. There is not as much paperwork or costs associated with a 203K loan as there would be with other loans because as stated above, a 203K loan is a "two in one" loan. The rates associated with 203K loans are quite competitive compared to the rest of the market since the FHA is a government agency, and not a private bank.

FHA 203K loans do not have many disadvantages to them. The only complaint normally ever reported about a 203K loan is that it can take a little bit longer to close on the loan then you would normally expect from someone else like a private lender. In an attempt to minimize the disadvantages, there are a good number of reputable credit broking organizations that will assist you with your money management.

Along with the improvements that will be needed with the house, a 203K loan can help pay for the home itself too. What you get loaned, as far as money goes, depends on where the geographic location of the property you're considering purchasing is. The amount of money loaned is typically 110% of what the home's projected value will be after the purchase and improvement are complete for the home. You can get a loan that is a little bit smaller from the FHA if you are just trying to undertake a smaller task. 203K loans also require an agreement that the improvements on the property must be finished within 6 months of the home loan closing.

It's good to get an estimation of the property and what it's improvements will cost before you buy them, and you get can get a good estimation from a reputable broking company. This is important because you can't go borrow more money from the FHA if you run out. HomePath loans is a spectacular broking company that can help you out tremendously. The amount of services and solutions offered by HomePath loans is very large, the offer things such as debt consolidation, loans, mortgages, and management of finances.

Which Type of Home Loan is Right For You?

Buyers who wish to purchase a home in need of renovation or repairs may not know the cost associated with completing those repairs and will likely need assistance. Being pre-qualified for a home loan is favorable and a mortgage broker can assist borrowers with this process. Because so many different types of home loans exist it is very important to understand each loan type.

Buyers who intend to purchase a home requiring repair or renovation should consider a 203k loan. Buyers may be asking, "what is a 203k loan?"
The costs of repairs can be merged with the cost of purchasing the home into one loan with a 203k FHA loan. 203k loans appeal to many because of the extensive list of repairs that can be done and will qualify. Repairs can be made to chimneys, flooring, landscaping or a complete total house renovation can be done using the funds from a 203k loan.

An appraisal of the property must first be completed so that the lending agency is aware of the base value of the home before any repairs. Bids and estimates submitted by qualified contractors will be used to determine the after renovation appraised value of the home. Time constraints exist on the timing of the repairs which contractors need to be aware of. Homes can receive a new life with a 203k loan and home buyers and home owners alike should consider this as a financing option.

Brokers will often cover explanations of 203k loans and homepath loans together as they have similarities. Because the cost of repairs can be wrapped into a homepath loan as well, the two types of loans are often compared directly.Repossessed or foreclosed homes qualify for homepath loans. Houses which qualify for homepath loans are all sold in as-is condition and should receive a thorough inspection from a potential buyer. Repair costs are bundled with the mortgage resulting in a mortgage that will initially exceed the value of the property. The details of each loan type can be confusing to many which is why it is important to consult with an educated mortgage broker.

Documents needed to secure a home loan must be received on time and be complete in order to secure a loan. Brokers will also be certain that customers understand the amount of down payment required for all types of home loans and any costs associated with appraisals.
Once you have found a home within your budget it is exciting to know that you can morph that house into your dream home.