A lot of people have second thoughts when it comes to buying a new home if it requires any investments to fix its…looks. And this happens mostly because this implies important costs which the majority can’t cover with ease.
If you’re in a situation like this, there’s actually some good news: the Federal Housing Administration has developed a special program for you: the Limited 203K loan. Basically, this eliminates a big part of the paperwork you need to fill, simplifying the process in order to obtain rehabilitation funds.
One of the main targets of this program is to help first-time homebuyers, who are often turned off by fixers or overwhelmed and not prepared enough to deal with all the work they need to do in order to buy a home up to today’s standards.
“Buyers get their foot in the door,” says Dan Tharp, mortgage loan officer at Guild Mortgage in Sacramento. “They end up saying ‘We have a lot of work to do here, and we’re never going to get it done,’” he added.
If this sounds familiar, the 203k loan might be the answer you were looking for.
Ok, but how does it work?
Simply put, this loan is used to repair a home you just bought, being figured into the original loan balance. Therefore, you won’t end up with two loans, but just one. And this is, by far, one of the major advantages this offer has.
Besides this, the 203k loan can be an adjustable-rate or fixed-rate mortgage, while the balance itself can exceed the purchase price of the property. What’s also worth mentioning is that borrowers are not required to hire professional consultants, licensed engineers, or architects. Therefore, if you are a handyman yourself and think you can do it, there’s no reason why you shouldn’t repair everything on your own. Of course, another cost-effective way of taking care of all the recommended repairs and improvements would be to ask your home inspector to put together a list with them!
What repairs does the loan cover?
We know, everything sounds very good until now, but a very important aspect is that, in fact, the loan allows just simple repairs, which can be easily estimated and completed. Many of these are considered light cosmetic repairs, but others will eventually require the intervention of a licensed contractor if they manage to fall out of your area of expertise. Make sure you check the list of approved repairs from HUD before starting everything.
What are the requirements to perform the work?
As a borrower, you can select a licensed contractor, while the lender will first review the contractor’s experience, background, and referrals. Also, a copy of the contractor’s estimate and the agreement between the contractor and borrower will be required.
Borrowers can set a “self-help” agreement, which confirms that all the work will be done by them. Also, do-it-yourself projects will require documentation supporting the borrower’s knowledge and ability to perform all the necessary work.
How is the disbursement of payments made?
A maximum of two payments is allowed for each contractor, including the borrower, providing the borrower works as a “self-help” plan. Secondly, if you want to give an advance, no more than 50% of the total value is allowed.
Opting for DIY? Such allowances do not include labor, as only materials costs are allowed. As for the final payment, it’s paid just after the submission of an evidence of payment to sub-contractors or other possible lien claimants.
Speaking about contractors, if you just applied for the 203k home repair loan, Hybrid Construction is here to help. Providing quality services to residential and commercial clients from the Hillsborough, Pinellas, and Pasco counties, they are specialized in loan rehab, being always ready to come up with a solution that meets your needs.
Picture Credit: pexels