FHA 203k Mortgage – A loan to buy and repair a distressed home

Ever heard of a restructuring loan for normal buyers?

Little do many potential buyers realize that by buying a distressed property with a $203,000 loan, they can get a lot more home for their money.

The FHA 203K loan simply bundles the cost of rehabilitating a distressed property into the home’s overall mortgage.

The value of using an FHA 203k loan, simply explained, is as follows:

When someone buys a home that is in move-in condition, they are most likely paying fair market value for that home. When they apply for an FHA loan, their down payment is 2.5%. Any changes they wish to make to make the house their own such as: B. Changing the kitchen or bathrooms are additional costs after the sale and these costs are the responsibility of the buyer.

For example, a person buys a ready-to-move-in home at fair market value of $400,000.

A similar home in the same neighborhood is also for sale, but this home is distressed and in need of updating and repairs. Because of this, the buyer is paying much less for this property, and with an FHA203K loan, the buyer can repair and repair the home to bring it up to the same standard as the first home. Generally this can be done for much less than the cost of the first home overall, giving the new distressed home buyer immediate equity in the property. This is also known as “sweat equity”.

To explain this, let’s assume you paid 80% of the post-repair value (80% of $400,000), which is $320,000, and the property requires $35,000 for refurbishment and repairs. The FHA 203K loan allows for a $355,000 loan amount that covers both the purchase price and renovations or repairs to bring the home up to the same standard as the first home, such as a new home. B. A house with a fair market value of $400,000. The added benefit is that you can select your kitchen or other upgrades and customize them to your liking during rehab/repair. You now have $45,000 equity in the house.

The FHA 203K Loan is ideal for financing your purchase and repair/rehab with one loan, plus all the benefits of a genuine FHA loan.

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

If you need help getting a list of distressed homes in SW Florida, please feel free to visit us