In a different article we described a common scenario: when an FHA appraiser finds potential safety hazards and, for the bank to approve the loan, the seller must carry out the repairs necessary to address the problems. If the seller refuses the only option for the buyer – provided they still want to go through with the purchase – is to get a 203K loan.
A 203K loan allows a buyer to borrow additional money in order to complete required or necessary renovations of the subject property. If the repairs are non-structural and the amount required is up to $35,000, streamlined 203K is the best option since it requires less paperwork and can be done faster.
In this case the borrower receives the “base” amount of the loan at the closing and the remaining balance after work on the property is completed. An estimate of the total project cost includes labor, even if the homeowner does the work themselves.
As with any FHA loan the property has to be the primary residence of the buyer, which is why investment properties do not qualify for FHA financing.
If you decide to apply for a 203K loan you need to make sure that your mortgage consultant is experienced in such financing and is willing to invest her time and effort to see it through to completion. You have to be aware that it will take her twice the amount of effort to close a 203K loan though her compensation will remain the same. With this type of loan, more than any other, the outcome is dependent on your loan officer’s skill and dedication.