What is a 203(k) loan?
- A mortgage loan that can be used to buy and repair "fixer uppers" or improve your existing home. The repair costs can be built into the mortgage.
- The one loan covers the purchase and the repair of the home.
Two types of 203K loans exist.
- The Streamline or Limited Program may only be used for minor remodeling and non-structural repairs. A consultant is recommended to service, guide, and mange the process, however the Limited 203(k) does not require the use of a 203(k) Consultant. The total rehabilitation cost must not exceed $35,000.
- The Standard 203K Mortgage may be used for remodeling and repairs. This requires a minimum repair cost of $5,000 – $100,000+, to make needed repairs and desired upgrades. An FHA, 203(k) consultant is required for standard 203(k) loans.
What's the cost of these loans?
- The minimum down payment for a 203(k) loan is 3.5% if your credit score is 580 or higher. You'll need to put down 10% if your credit score is between 500 and 579. Down payment assistance may be available through state home buyer programs. Monetary gifts from friends and family are permitted as well.
Are these loans hard to get?
- FHA (Federal Housing Authority) loans are generally not hard to get and most lenders work with FHA. Before you call in a builder to give you an estimate or find a lender, you need to know that you can get the money. Even when you have the lender don't contact a building contractor until you have partnered with your 203k FHA consultant so we can help you with cost estimation!
Why is a 203(k) consultant needed?
- To complete the Work Write Up (WWU), the consultant will meet with the borrower at the property to complete a walk through inspection.
- The consultant will note all FHA Minimum Property Standards (MPS), required repairs, and will note what additional repairs, renovations, upgrades, etc., the borrower may desire.
- The consultant must also make sure the property meets the $5,000 minimum guideline for eligible & required repairs.
Who are 203(k) consultants?
- The 203(k) consultant is someone who has been designated by FHA to act as a consultant to borrowers. To be designated, the consultant has met the experience requirements for HUD approval and has been trained in the Work Write Up and Specification of Repairs (SOR) format of the 203(k) program.
What does the 203(k) consultant do?
- The 203(k) consultant completes the Feasibility Study, Work Write Up, the required architectural exhibits, and the Specification Of Repairs.
- The quantity and the cost of each item must be shown, as well as a complete description of the work for each item on a room by room basis.
What types of improvements are allowed?
- Structural alterations
- Changes to improve functionality & modernization
- Elimination of health & safety hazards
- Changes for aesthetic appeal
- Repair/replacement of plumbing, heating, air conditioning, & electrical systems
- Installation/repair of a well
- Installation/repair of a septic system
- Roofing, gutters, & down spouts
- Wood flooring, tile, & carpeting
- Improvements for handicap accessibility
- Many possibilities!
- Required repairs or upgrades may be needed to meet the FHA Minimum Property Standards.
- The borrower may choose to replace or upgrade certain dated/worn items.
- The borrower may choose to install eligible items
What types of improvements are not allowed?
- Install a swimming pool/spa/sauna/exterior hot tub (Some repairs can be allowed)
- Install a gazebo
- Install a barbecue pit
- Install an outdoor fireplace
- Install a tennis court
- Install cosmetic landscaping (Landscaping that addresses erosion or water drainage issues can be allowed)
- Purchase furniture, TVs, window blinds, etc.
It can be a fine line between what is and is not allowable and in some cases, if worded correctly on the consultant work write up, can encompass a LOT of potential repairs. Good consultants know what you can and can’t do. Be prepared, use a knowledgeable consultant, and give yourself the best chance for 203k success.
What areas does Lone Star 203k cover?
- We currently cover San Antonio, Austin, and the surrounding areas.
- (Bexar, Kendall, Guadalupe, Comal, Blanco, Hays, Travis, & Williamson counties*).
- *Other areas serviced on a case by case basis as schedule allows.
Questions?
• We have answers! Please email or give us a call. We'd love to work with you!