If you are thinking of buying a home that is a fixer-upper, then you might be able to get that home for a discount – but then you still have to make repairs.
That’s where the 203K loan comes in. It allows you to buy a home that may be in an awesome location and just what you want – but may need some work. It allows you to combine the purchase of that home and the repairs/renovations into one home loan.
A lot of lenders don’t like these loans because they require a lot of extra paperwork, but these are often very good for the person who is actually buying a home. So let’s take a look at how a 203K loan actually works.
How Many Kinds of 203K Loans Are There?
When people say they are getting a 203K loan, they are typically getting one of two kinds of a loan:
1) Limited. This may be one of the most common in some areas but just depends on your particular circumstances. This loan allows you up to $35,000 for repairs – but not structural repairs typically. Examples of the work this money can be used for are kitchen and bathroom remodels, carpeting, etc. This type of loan is NOT meant for major building remodels.
2) Standard. This one has a minimum of $5,000 and is meant for much larger remodels. You might be able to do a full home remodel with this loan – but it still has limits that can’t exceed certain standards.
How to Get a 203K Loan
The first thing you will need to do is find a lender. You may have to go through a couple of different lenders before you find one who offers this type of loan.
The next few steps are pretty much tied up with the lender. They will walk you through the steps as you review the scope of work, the home, and other items.
Also, during the process, they will be sending a 203K inspector to check things out. This is a typical requirement for 203K loans as the work on the home progresses.
WHAT’S NEXT?
There are several other steps you will need to take. You will need to hire the contractor, get any permits needed, and make sure inspections, inspectors, contractors, and everything else is scheduled out properly. Make sure your contractor knows ahead of time that there may be some downtime in between project phases for the 203K loan inspector. Afterward, you will likely need an appraisal to make sure everything is all set in that aspect of things.
Conclusion
A 203K loan, while initially requiring a little more work than a standard loan, is a great way to create the home of your dreams when the home you want isn’t available. This is because you can make the home you found that needs some work into something better.
If you are looking for some articles on Home Inspections, you might find How Many People Should Be on a Home Inspection? and Why Get a Pre-Listing Home Inspection? interesting.