Learn About 203K Home Loans

A 203k loan is a very specific type of specialty loan that serves one very distinct purpose: allowing individuals who want to renovate a property to get the money they need to restore and renovate a house or property that can then be lived in or sold. The 203k loan is not used for any home purchases where a family is just upgrading or a person is looking for their new home but the point of a 203k is to encourage individuals who want to buy and flip properties or restore old uninhabitable houses and turn them into legally habitable domains.

What’s the purpose?

Old homes often don’t only need repairs to be brought up to standards, but they need to be modernized to be practical, as well. There’s a reason central air and heating is always used with modern construction over old vent systems or wood stoves. Sealed windows, green energy options, and plumbing systems have changed radically over the years. Potential issues like lead paint, asbestos, or lead pipes need to be taken into consideration.

Taking an older house and fixing it up is a major process that takes work, time, and often can be very expensive, as well. The 203k loan is backed by the FHA and gives security to lenders to encourage lending for these types of repairs. Turning a dilapidated property into a modern and livable home is good for the owners, the neighborhood, and creates wealth out of decay.

How to apply for a 203k loan

The first step is to look for an FHA approved lender in the area who can actually give out these type of loans. Without that there is no chance at getting one of these 203k loans. Second, go through the FHA rules to make sure a property is eligible. It has to be under a certain value, but that value varies radically depending on location and the average cost of a property in the area.

These loans do offer a degree of security for banks since they are partially insured, but it’s important to note that people will still need a decent credit score and loan application in many circumstances. This isn’t an “everyone qualifies” type of loan – the proposal still needs to be exceptional.

Learn about the flexible loan plan

The lending and the payment plan for this type of loan will work normally, but there are several factors that make this loan flexible.

A 203k loan can be used for a variety of issues such as:

·         Outdoor decks, porches, and patios

·         Interior flooring

·         Plumbing

·         Heating & air conditioner changes

·         Overall modernization of home

·         Bringing in energy efficient and green-based improvements

In addition to this, it’s worth noting that there is a basic safety built-in with these loans. Most FHA backed 203k loans will include a contingency reserve that is equal to 20% of the original loan request. This amount is sitting there in case additional problems are found or the cost of materials and work goes beyond the original estimates, something that often happens with these home restoration loans. For more about this type of loan, go to: portal.hud.gov