Articles by Topic, Construction, Featured Post, Finance, Front Page Feed, General, Home Improvement, Mortgages, Selling Your Home, Title & Escrow

What Makes a Home “Perfect” for a 203k Loan?

Do you 203k?  What the heck is that? 

Many people in the lending and real estate industry have learned about the “new school” 203k renovation loan.  What some people might remember, is the “old school” version of the 203k loan which was used widely in the 80’s and before.

Simply put, the “new school” version of the 203k loan which was brought back into widespread use by Congress passing The Housing and Economic Recovery Act of 2008 is much simpler to use than the older version - less paperwork, less red-tape, faster approval times.  At the current time, most lenders can approve FHA 203k Renovation Loans in approximately the same amount of time that they take to approve most standard FHA loans once the “new finishes” are determined by the homeowner.

While the initial thrust and what most people think of using 203k loans for  seems to be for fixing up existing bank-owned homes ”that were trashed”, the loan in effect not only applies for completely trashed houses, but also for some that just might need some new carpet and paint  - Basically, any home being purchased  (under the FHA maximum amount) would qualify as long as the the property updates “make sense”.

Which brings us to the second point.  What the heck happened to people having “second mortgages” on their homes?  This one we pretty much all know the answer to - they are simply gone for the most part.  Lenders in particular really, really do not like being in second position when there are widespread foreclosures going on as is currently happening.

Simply put, “second’s” have largely been replaced by “203k’s” because there is only 1 loan on the property and the renovation funds are actually used for renovations which are adding value to the home.   Congress simply got tired of people taking out a second on their home to buy a motorcycle, go to Europe, pay down some credit card debt, and not using the money to actually improve the value of the property (that was the original intent of a second, right?  to borrow money against the house to actually improve the property…? ). 

Our great grandparents knew that the “whole system” which we had created by robbing Peter to pay Paul with our “equity” in our homes was a dead end street in addition to lenders up until the past few years being told by Congress that is was OK to loan up 125% of the value of homes in general.

Apparently, the ghost of FDR came to our members of Congress in 2008 and at least partially set them straight on what “renovation funds” should actually be used for.  If FDR were alive today, no doubt he would make sure that the 203k loan would also be promoted as a way to get people back to work as well as bringing civic pride back into both the appearances of our neighborhoods and also self-respect for those who now have viable employment.

The great thing about 203k loans is that the lender will loan on the “projected” value of the house once the renovations are completed (i.e., if updating that old kitchen might add some value to the house, your lender would want to talk to you about that so your “equity needed” would not necessarily be the same as if you were approaching these renovations as in the old fashion of “getting a second” which we all know to a large extent have dissapeared anyways).

So in effect, any home which could use a little updating, or just a little TLC in general and falls under the local FHA Maximum Amount is perfect for a 203k loan.

Is the 203k the REAL NEW DEAL?  It just might be.

Please visit www.TheAnswer.info for more details.