FHA 203(k) Rehab Loan
Have you found a neglected property or foreclosure you'd like to buy but it isn't in habitable condition? Our FHA rehab loan is designed just for this situation. By combining the puchase price plus estimated cost of repairs into the loan amount, you can get that fixer-upper and have the funds you need for repairs right up front.
Consider an FHA 203(k) Rehab Loan When
- Buying a first home
- You don't have enough cash for the downpayment on a conventional rehab.
- You want to to purchase a dwelling on another site, move it onto a new foundation on the mortgaged property and rehabilitate it.
- You cannot qualify for a rural development rehab loan.
- You want monthly payments that are as low as possible.
- Your credit is not perfect.
- You want to buy on an Indian Reservation or other restricted lands.
If you have any of these needs, an FHA 203(k) rehab loan may be right for you.
FHA Rehab Loan Process
The process of obtaining an FHA 203(k) rehab loan is as follows:
- Find out how much you can afford. The process of getting pre-approved is free, only takes a few minutes and can be done over the phone. We'll provide you with a letter of pre-approval that you can give your realtor and sellers to let them know you are a serious buyer.
- Find a fixer-upper and do a feasibility analysis of the property with your realtorTM. If you and your agent agree on the feasibility, execute a sales contract. An executed contract is one that has been signed buy the buyer and seller. The contract should state that the buyer is seeking an FHA 203(k) loan and that the contract is contingent on loan approval based on additional required repairs by FHA or the lender.
- Obtain detailed plans and specifications for the rehabilitation and provide them to us when you apply for the loan.
- An appraisal will be done by a licensed appraiser to determine the value of the property after renovation
- Assuming all goes well, the loan will be set to close for an amount that will cover the purchase or refinance cost of the property, the remodeling costs and the allowable closing costs. The amount of the loan will also include a contingency reserve of 10% to 20% of the total remodeling costs and is used to cover any extra work not included in the original proposal.
- At closing, the seller of the property is paid off and the remaining funds are put in an escrow account to pay for repairs and improvements during the rehabilitation period.
- The mortgage payments and remodeling begin after the loan closes. The you can decide to have up to six mortgage payments (PITI) put into the cost of rehabilitation if the property is not going to be occupied during construction, but it cannot exceed the length of time it is estimated to complete the rehab.
- Escrowed funds are released to the contractor during construction through a series of draw requests for completed work. To ensure completion of the job, 10% of each draw is held back; this money is paid after the lender determines their will be no liens on the property.
Learn More
To learn more about FHA rehab loans and our many other rehab loans, contact one of our loan officers.