Distressed properties, including foreclosures and short sales, continue to flood the market. You might even consider buying one if you are looking for a bargain.
However, while many of these properties are very affordable, they often come in less-than-perfect condition and require some repairs.
To purchase a property that needs repair work, you might want to consider a 203K mortgage through the Federal Housing Administration. These loans allow buyers to take out a mortgage large enough to both buy the property and fix it up.
To get started, you must first locate a home that needs some work that you want to purchase. Then, an FHA lender will then set up an appraisal of the home to determine the home’s current worth, what repairs it needs, and how much it will be worth in the end.
Why might a 203K mortgage work for me?
If you try to get a conventional mortgage for a fixer-upper, you might need to enter the deal with plenty of cash in your pocket. While initially the price of the home will seem more affordable, you need to pay for any repairs yourself.
These 203K loans allow you to finance the cost of the repairs are needed over the course of your mortgage. This means that you pay for the cost of a new boiler and cabinets or structural repairs over 30 years.
In addition, because they are through the FHA, 203k loans only require a minimum down payment of 3.5 percent.
What kind of 203K can I get?
A 203K loan comes in two forms. The first is a Streamline K, which has less paperwork and is for properties needing mostly cosmetic changes. $35,000 is the upper limit on repair costs.
Meanwhile, if you want to purchase a home that will require a significant amount of work, you should consider a Consultant K loan. Repair costs with these loans must be at least $5,000, but there is no cap.
How do the repairs work?
Because the repair work is part of the mortgage, inspecting it is also part of the process. With a Streamline K loan, the repair contractor will receive half the repair costs in advance. Once an FHA-approved inspector reviews the completed repairs, the rest of the money goes out.
The process is different for Contractor K loans because the repairs are more extensive. In these situations, an inspector will sign off on repairs in a few stages, releasing money to the contractor when they meet various benchmarks.
Improving your home value is a great way to get the most out of your investment if you ever decide to put your property on the market. Refinancing your home loan with Freedom Mortgage is just one way to free up some extra cash to make those much needed changes to your home.
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