FHA 203k Loan Consultant
FHA 203k LOAN CONSULTANT IN SAN DIEGO
What is a 203K Rehab Loan?
In this video, Jeff Onofrio explains what a 203k Rehab Loan encompasses and why it’s important to use a good HUD 203k Consultant in San Diego.
FHA 203k Rehab Loan Requirements
In this video, Kyle from Motto Mortgage Alliance explains what a 203k Rehab Loan process, what to expect with a HUD 203k Consultant and more. Click here to visit his channel.
How Do You Hire A HUD Consultant For 203k Loans in San Diego?
From property selection through post closing and the contractor draw process, the role of the 203k HUD Consultant is important to the success of a FHA full 203k loan.
Think of the 203k HUD consultant as your personal project manager that provides security for the bank and the borrower. Most HUD consultants are also licensed inspectors, contractors, and even architects, so you have the opportunity to have a highly qualified third-party in your corner through your entire 203k loan process and property renovation.
What's possible with a 203k Loan?
You’ve found a good home to purchase but it could be better. Or, the house you’re in now is ready for some improvements.
Find room to improve the property you currently own, or, fix-up a property that has hidden and untapped potential. Your dream home awaits. Watch this video to see how the owners vision and intention are mobilized, and see how using an FHA 203k Rehab Loan, they take an average property, and transform it to become their dream home.
What Is an FHA 203(k) Loan?
An FHA 203(k) loan is a type of government-insured mortgage that allows the borrower to take out one loan for two purposes – in particular, for home purchase and home renovation. An FHA 203(k) loan is wrapped around rehabilitation or repairs to a home that will become the mortgagor’s primary residence.1 An FHA 203(k) is effectively an FHA construction loan.
Key Takeaways
- An FHA 230(k) loan is a government-backed mortgage that is essentially a construction loan that finances both the purchase and repairs on a home.
- These loans are intended to support home ownership among households who can improve and update older properties as their primary residence.
- The FHA offers different varieties of the 203(k) loan depending on the extent of repairs that need to be done.
- FHA 203(k) loans, which are government-backed, provide reassurance to lending institutions, as the cost of renovating the home is included in the mortgage package.
- The renovation fees are placed in an escrow account and disbursed as payment to the contractors as the work is completed.
- Complete renovation of the home should not take more than six months, as outlined in the FHA guide for a 203(k) loan.
Types of 203(k) Loan
Streamline 203(k): Minimal Repairs
A home that does not require much work on it would usually be paid for using the streamline or “limited” 203(k). This option does not include structural work on the home, such as adding new rooms or landscaping, and the home must be habitable throughout the renovation period. Repairs under the streamline 203(k) are capped at $35,000.
Standard 203(k): Extensive Work
The standard 203(k) includes any extensive repairs and structural work that need to be done in the home with no capped repair cost. The minimum amount that can be borrowed is $5,000.
Some of the repairs that an FHA 203(k) loan covers include plumbing, flooring, painting, heat and air conditioning systems, bathroom and kitchen remodeling, improvement of health and safety standards, landscape improvements, implementing access tools for disabled persons, the addition of energy conservation systems, and window and door replacements.
Renovations that are considered extravagant or luxurious (such as pools or improvements that would not be a permanent part of the property like gazebos) are not covered under an FHA 203(k) loan.
Getting an FHA 203(k) Loan in San Diego
It is important to note that the FHA is not a lender; rather it is a mortgage insurer. You get an FHA 203(k) loan by applying through your bank, credit union or another lender. Not all lenders offer these loans. To find an approved lender, see HUD’s approved lender search.
It is also not a home insurer or warranty provider. Home buyers still need to purchase home insurance and warranties for their home and property.
Pros and Cons of a 203k Rehab Loan
Pros
- Great for buying a fixer-upper
- Allows the financing of the purchase and the improvements.
- Only 3.5% Down Payment
- Builds Equity Fast
Cons
- No DIY – Must Hire Contractor
- Usually Takes Longer to Close
- Not Available From All Lenders
- More Paperwork
What repairs can I do with an FHA 203k loan?
There are two types of 203k loans. Which one you choose depends on the extent of the repair work.
Limited 203k mortgage (formerly known as the ‘Streamline 203k’)
This option allows you to do most cosmetic repair work, including things like kitchens and bathrooms.
The stated limit to costs is $35,000. However, an FHA 203k loan requires a “buffer” equal to 15 percent of the total bids.
This buffer is called a contingency. It’s a “just in case” fund to cover cost overruns by your contractor. (If the contingency fund is not used, it is credited back to you).
So, your “real” maximum repair costs can be around $31,000.
Most non-structural, non-luxury items are acceptable:
- Kitchen and bathroom remodels
- Appliance replacement
- HVAC upgrades or replacements
- Carpet and flooring
- Roof replacement including gutters and downspouts
- Painting
- Repairing safety and health issues
- Energy-efficient home improvements
- Septic system improvements
- And much more
In short, you can’t do anything structural (move load-bearing walls, add rooms) or change the footprint of the home.
So why choose the Limited 203k option? Because more lenders offer it than the full 203k. And, it’s a much simpler process than the standard option.
Standard 203k rehab loan
With the standard FHA 203k loan, you can do just about anything you want to the home, except non-permanent changes or adding luxury amenities.
Allowable projects using the standard 203k include:
- Structural alterations
- Converting a one-family home into a 2-, 3-, or 4-unit home, or vice versa
- Connecting to public sewer or water
- Some larger landscaping projects
- Improving accessibility for disabled persons
- Moving the house to a different site
What you can’t do with the 203k loan
While FHA 203k guidelines are fairly lenient, there are some things you cannot use the rehab funds for. For example:
- Minor landscaping
- Adding a luxury amenity like a tennis court, barbecue area, or swimming pool
- Projects that will take longer than 6 months
In these cases, other options might be a better fit, such as getting a home equity loan after purchase, or other alternatives mentioned in the next section.