by Shawn Clayton
on Friday, November 17th, 2017 at 11:05am.
There are a lot of different types of loan plans available in the market. Knowing the right one for your situation as well as your goals can be confusing and frustrating for people who are new to the New Jersey waterfront market. With so many plans available to choose from, it can be hard to know where to start. One loan plan worth considering is the FHA 203k home loan. This is a loan plan that is slightly different than what many people are used to in the market. Unlike a USDA loan, this home loan program does not have location limitations, so it can be used in many more communities such as Highlands. The key difference is that buyers are able to roll both the cost of the home as well as any repairs into one loan for the home.
When Should You Consider a 203k Home Loan?
An FHA 203k loan is a great idea in a few circumstances. A common situation to use it in would be for when you are considering purchasing a fixer-upper. If you are looking at a home that needs quite a bit of work, then the 203k loan program may be the ideal program for you. This is because instead of trying to get a mortgage loan for the home as well as a loan for all of the repairs, buyers can instead both pay for the renovation and the mortgage itself with one loan and one process. Buyers can save themselves a lot of time and hassle by utilizing this type of program for a fixer-upper home.
There are some conditions that come along with this, however. If you are planning on using it for this purpose, then the actual work on the home must be completed within 6 months of the mortgage approval, which can be limiting for home buyers who want to take a more leisurely pace with construction or with buyers who have major renovations to complete. Also, you would not actually hold the money for the repairs. It would be placed in an escrow account and then paid out to the contractors when the work is completed as well as in increments of completion.
There are different levels of work that can be used with this loan as well. For some, you may want to consider building in the complete cost of renovation for a home. There may be extensive key home improvements required to make the home livable and a functioning part of the community. On the other hand, you may want to use the loan for a few smaller repairs like adding another bathroom, renovating the kitchen, and more.
When You Cannot Use a 203k Home Loan
The 203k home loan program is designed for individual buyers. That means that if the purchase of the home is for investment purposes, then this program cannot be used. It is also designed for one- to four-unit properties, so anything larger than that is not approved under this loan. On the other hand, buyers are not required to have perfect credit in order to qualify for this loan program. Buyers still need to prove that they make enough income to afford the monthly mortgage and renovation loan payments, but this means that while buyers can be approved for the loan with a less than perfect credit score, if you cannot afford to make the monthly payments on the loan, then you will not be approved for the loan when you apply.
The FHA 203k home loan program is a great option for a home that needs a lot of work in order to be livable. This is not the case for all homes, but if you find a fixer-upper home in need of renovations, and if you meet the qualifications for a loan and you want to purchase it, consider the 203k home loan program.