Let’s imagine a situation where you are searching for your dream home but can’t find it. But there are many real estate options on the market that need renovation. This is where a 203k loan can come to your aid. With its help, you can pay not only for a house but also for its repairs. Sounds like a good deal! But let’s figure it out — is a 203k loan worth it?
Some basics
The 203k loan from the Federal Housing Administration is an opportunity to get one loan but finance two things at once:
- buying a house
- home improvements
Also, if you already own a home, you can use the 203k loan solely to pay for renovations. But then you must refinance the current loan into a 203k loan. On the other hand, you can simply use a home equity line of credit (HELOC).
203k loan is a profitable solution for lenders and borrowers. For the lender, because the FHA guarantees the loan. For borrowers — because they can count on a down payment of only 3.5%. But, if they have a credit score of more than 580. If the score is lower, you will have to pay about 10%.
Is a 203k loan right for you?
Who can apply?
Homeowners can qualify for a 203k loan. Owners of apartments and townhouses can use a loan to pay for interior work.
Who does the repairs?
All home improvements are performed only by licensed contractors. The FHA insists on professional repairs and handles contractor documentation responsibly.
How long will it take?
All repairs are carried out within six months. As work is completed, contractors receive payment. Also, the borrower may qualify for additional money to pay for temporary housing while the repairs are ongoing.
Benefits of 203k loan
- Low down payment of 3.5%. But, if the credit score is below 580, the premium will be higher
- One payment once a month — instead of two loans for housing and repairs
- Loan interest is not taxed
- You immediately improve your home, you can even install appliances in it
Disadvantages of 203k loan
- High down payment for buyers with credit below 580
- Investors cannot use the loan
- 203k loan available only for primary residence
- You cannot choose a contractor other than licensed experts
- If your down payment is less than 20%, you will have to pay additional mortgage insurance payments
Is a 203k loan worth it? Conclusion
The 203k loan is a good option if you don’t plan to move and would like to get more with one mortgage. To get acquainted with the lending process and more accurately answer the question, is a 203k loan worth it, contact LBC Mortgage for advice. We will select financing for your financial situation, answer questions, and prepare the necessary documentation. In the meantime, you can choose the home of your dreams.
