Most of us can’t afford to buy a house in cash. Luckily, mortgage loans are available to help finance your dream home. But what happens if the house you’ve fallen in love with turned out to be a fixer-upper? Should you move on with the next house or will you go for it?
Home improvement projects – repairs and maintenance included can cost you hundreds to thousands of dollars. If you’re keen on buying a house that needs some TLC, then what you need is more than a typical fixed-rate home loan. Thankfully, you can apply for a special type of FHA Loans El Paso in financing a fixer-upper home.
With an FHA Loan such as an FHA-insured Section 203(k) loan, you get to get the best of both worlds – buy a fixer-upper home and have the funds needed to repair it. But before you go and apply for an FHA 203k Loan, here are some of the things you need to know.
An FHA 203k Loan Is A 2-In-1 Mortgage Loan
With an FHA 203k loan, you don’t need to apply for two separate home loans (one for buying the house and another one for the repairs). This is a special home loan program that rolls the cost of mortgage and renovation into a single loan. This is perfect for homebuyers who need both funds for repair and home purchase.
Minimum Down Payment Is 3.5%
The great thing about FHA loans is that it allows homebuyers to buy a house for a smaller down payment. For an FHA 203K loan, the minimum down payment required is 3.5% This already includes the renovation and house purchase costs. If you can afford a high down payment, the better.
It Requires An Upfront Mortgage Insurance
When it comes to FHA loans, its borrowers need to pay upfront mortgage insurance no matter how much your down payment is or the amount of home equity you have. It is also worth noting that you will need to pay your annual mortgage insurance if you paid less than 20% down payment. This also applies if your loan to value is more than 78%.
FHA 203K Loans Has Two Versions
Streamline 203K is for renovations amounting less than $35,000 and usually takes longer than six months to complete the home improvement and needs to make more than two payments for the contractor. As for the standard 203K loan, you can use this for major renovations that will cost more than $35,000. Because of the large amount at stake, the paperwork is more intense than the streamline 203k.
FHA Has Its Property Standards
Anyone who wishes to avail any FHA loan product (an FHA 203K loan included) needs to meet its minimum standards. An appraisal is required to check the condition of the property and make the necessary reports on the FHA appraisal report. If the house doesn’t meet the property standards set by FHA, then you can expect your lender to reject the application.
Recommended Read: The FHA’s Minimum Property Standards
These are some of the things worth knowing before applying for an FHA 203K loan. Before saying yes to any fixer-upper home, do your research to ensure you’re getting a good deal out of the real estate transaction.