What is an FHA 203K ?
FHA stands for Federal Housing Administration (FHA) and is part of the Department of Housing and Urban Development (HUD). FHA administers a number of single family mortgage insurance programs. These programs are all operated through lending institutions approved by FHA. One of those programs, the FHA 203k loan, is used for the rehabilitation and repair of single family properties. Single family properties include 1-4 units, condos and townhomes.
HUD does not make direct loans to consumers (homebuyers or homeowners) but FHA loans are funded by approved 203k Lenders and are then insured by FHA. What makes the FHA 203k Loan different? Most mortgage financing plans provide only permanent financing, in other words, lenders do not usually release funds to close unless the condition and value of the property are adequate enough to secure the loan. When it comes to rehabilitation, this means that the lender usually requires that improvements be made before a long-term mortgage is made. This is where the 203k loan comes into play because those improvements can now be made after the home loan
FHA 203k Appraisal
FHA 203k purchases and refinances both require an appraisal. Though here is a difference between a Standard FHA Appraisal and an 203k appraisal. A 203k appraisal will estimate the value of a property by including the improvements and project a “Future Value” of the property while a standard FHA appraisal doesn’t.
203k Loan Requirements
Loan Requirements such as credit, income, down payment etc. are the same as Standard FHA loan requirements. Both have the most flexible guidelines with minimal down payment than any other type of loan at this time. The difference between the two is that the FHA 203K will allow for the repairs, rehab, green rehab or remodeling of your home to be included into the new loan while the Standard FHA 203B won’t.
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