ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Everything You Need To know About Prospect Mortgage 203K Loans

Updated on December 12, 2013

Rehab a Home with HUD's 203K Loan

A type of federally insured mortgage product for individuals who want to rehabilitate or repair a damaged home that will become their primary residence. In addition to the funds to cover the purchase price of the house, the FHA 203(k) loan provides the money needed for repairs and related expenses as part of the loan.

This loan has a low down payment requirement compared to private-sector mortgages and puts rehab projects within reach for individuals who otherwise could not afford them. Supporters of this type of loan say it helps improve communities and broadens home ownership opportunities for individuals; critics say that it's a risky loan product that isn't offered without government underwriting for a good reason.

Read the Prospect Mortgage disclosure here.

What is an FHA 203k Loan? - Intro to 203K Loans

FHA 203k loans are mortgage products offered by the federal government that allow individuals to fix heavily damaged or dilapidated properties in order to make them habitable. With only 3.5% down, people can secure a loan that accounts for all repairs, time for renovations and a contingency fund for unexpected costs. There are two types of 203k loans: regular is for homeowners who need structural repairs, and streamlined is for those who only need non-structural repairs. A property is not eligible if the construction was completed within the last year, or if the loan is to be used for luxury improvements. Single-family homes are eligible if they are not being used as an investment; the loan recipient must be the primary occupant.

Either one or two appraisals are needed for a FHA 203k. An after-improvement value is mandatory, but in some cases the borrower must also get a current value of the property without improvements. HUD-owned properties are eligible for 203k loans, and they don't require an as-is appraisal. The lender may request a Property Disposition from the Department of Housing and Urban Development in order to obtain the maximum value of the loan, or they can request a separate appraisal if that is not sufficient. In addition to structural home improvements, home owners can get a loan for 100 percent of the costs of energy-efficient upgrades under the FHA's EEM program. These enhancements, however, must be cost-effective in order to quality, and there are dollar maximums.

Once the 203k loan has been approved, the funds are released to pay off the seller and then put into a Rehabilitation Escrow Account. Funds are released from the escrow account as repairs and improvements are made and inspected by HUD officials. The lender is given the task of determining the disbursement schedule. While most 203k recipients will use the funds to hire contractors for improvements and upgrades, borrowers can renovate the property themselves if they can demonstrate expertise in the type of repairs they are making. A borrower, however, cannot pay himself for his own labor, he can only use the loan money to pay for materials.

After renovations are completed, the borrow can use any extra funds to make improvements that are approved by the guidelines set out by the FHA. If the funds aren't used for such a purpose, they will be used to pay down the principal of the loan. The time allowed for a renovation is written into the loan agreement, but the total time for renovations must not exceed six months. If the home is not habitable during repair work, the standard 203k loan allows for six months of mortgages. Borrowers who get a streamlined 203k loan are expected to be able to live within the property during repairs.

Learn About 203K Rehad Home Loans

203K Home Loans

The idea of purchasing a fixer-upper and turning it into a person’s dream abode can often be so perfect because every part of the home is made according to their specifications. Unfortunately, the reality can be a bit harsh. When an individual realizes how much they will spend to remodel, they often become fully aware that they cannot afford it. They may also find out that a lending company will not give them a loan because their dream home is categorized as uninhabitable. This is where 203K loans become very useful.

A Unique Loan Program

The FHA 203K loan lets a person refinance or purchase and rehabilitate real estate with one loan closing. The property’s projected rehabilitation costs are often placed in an escrow account. It is then disbursed as work is inspected and completed. The loan amount depends on the lower end of the projected market value after the purchase or repair price along with renovation costs.

Features of a 203K loan

Before obtaining a 203K loan, it is important for people to know their features and how these loans can help them. One of these features is that they have flexible underwriting guidelines. Up to a maximum of six months of mortgage payments can be included in their 203K loan if renovation is very extensive and the underwriter determines that a person cannot live in the house during construction. This often includes insurance, tax, interest and principal. With this, people do not need to make double housing payments when their home is uninhabitable.

Many types of real estate are also eligible. Single-family residences such as attached and stand-alone homes and houses in PUDs or planned unit developments are 203K eligible. Even though some special rules and restrictions apply, people can use their 203K loans to refurbish and purchase condominiums, mixed-use properties and multi-unit properties.

A Long List of Benefits

When an individual decides to obtain a 203K loan, there are a number of benefits that they can enjoy that are not found with other types of financing options. One of these benefits is that it allows people to purchase foreclosure properties that need repair.

The majority of HUD foreclosure real estate can greatly benefit from a 203K loan. Another advantage is that it allows people to buy a home that does not need repairs and finance the price of cosmetic repairs. At the same time, these loans can be easily used to convert a single family home to two to four units and vice versa for zoning purposes. Buyers can also utilize 203K loans to complete modernization and repairs when they buy the property with cash. Aside from that, up to 110 percent of the after-improved value of a home may be utilized as a basis for mortgage calculations.

Easy Qualifications

A 203K loan requires applicants to meet some important criteria. People must have the capability to pay a minimum down payment of 3.5 percent. At the same time, they should have a credit score of 640 and above. Aside from that, they must not currently have any other type of FHA loan. Unlike other kinds of housing loans commonly found on the market, people do not have to be a first-time homebuyer to qualify.

Maximum Loan Amounts

The maximum amount that an individual can obtain from a 203K loan for a single purchase is the sales price plus 96.5 percent of its after-improved value or improvements. For a refinance, it is often 97.75 percent of the after-improved value. People should also remember that these amounts are often subject to the usual FHA loan limits that vary by market. They currently range from a minimum of $271,050 to a maximum of $729,750 for a single-family property.

New Guestbook Comments

    0 of 8192 characters used
    Post Comment

    No comments yet.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://maven.io/company/pages/privacy

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)
    ClickscoThis is a data management platform studying reader behavior (Privacy Policy)