FHA loans are made by the Federal Housing Administration. These loans are used by first time home buyers or established home owners who want to finance a renovation, repair or alteration of their home. There are two classes of FHA203k renovation loans available: the Standard 203k renovation loan ( Rehab Loan) and the Limited 203 k Renovation Loan. The standard loan is made under the same conditions as other FHA loans. The Limited loan is designed specifically for renovation.
The good thing about the standard FHA loan is that it offers a number of flexibility options and allows a property owner to choose what kinds of renovations they want to do on their home. In addition, the repairs covered by this loan do not have to be major. For instance, a small roof repair would not normally qualify for the loan. The only thing a property owner need to do in order to qualify for a standard FHA loan is to fill out an application. After this, the property must be appraised and documents must be submitted to the agency.
A typical step in applying for the FHA loan is to send the lender a completed application including the appropriate documentation, the loan amount and the value of your house or property, etc. A representative will contact you to discuss your situation. During this stage, the loan officer will look over your application and determine if you meet the guidelines required by the agency. If you do, you will receive an approval from the lender. If you don’t, the process moves to the next step of receiving a Refinance Mortgage to complete your repairs.
As mentioned, when you obtain a traditional mortgage through a bank, the interest rate is based upon your credit rating and income. If you have bad credit or a poor income, you may not even qualify for a loan. Since the FHA does not consider income or credit, the lender must use the value of the house or collateral to approve or refinance your FHA rehab loan. The cost of your new loan will be determined by the difference between the current market price for similar properties in your neighborhood and the appraised value for the house or home. This higher fees and costs are due to the increased risk of the renovation, which increases the chances of needing additional funds to finish the project.
Many homeowners try to get a traditional mortgage from their bank or other lenders, but they often find that the terms do not allow them to finance the renovation in their current circumstances. They may be able to get a refinancing or refinance to another type of loan, such as a conventional or reverse mortgage. However, many banks will not consider a FHA loan for repairs and renovations unless there are additional expenses such as insurance. If your goal is to save money, a conventional refinance may not be the best choice for you. It would be best to talk to a professional mortgage broker to see if there are other options that may better fit your situation.
With a traditional mortgage, you pay a fixed interest rate and terms for the life of the loan. Your payments may rise and fall with inflation and other factors over the life of the loan, but if you make your payments on time you won’t have to worry about additional steps. With a FHA rehab loan, however, you must pay extra steps to obtain financing to renovate your home. Typically, you will need to qualify for more money upfront than you would with a traditional mortgage. You can help your cause by researching the extra steps that are required to obtain your FHA loan.
You may also qualify for a larger down payment and lower interest rates if you refinance with an FHA. Some people choose this option because the FHA requires stricter guidelines for lending, making these loans more affordable than other loans. If you decide to go with a traditional mortgage, you will probably have to put down a large down payment in order to qualify. While it is possible to find a FHA loan with a small down payment, it can also be more difficult to find one that has flexible terms.
Whether you choose a traditional mortgage or an FHA loan, there are benefits to both types. You’ll be able to renovate your home for less money, and you will also have better chances of obtaining a higher refinance value when you sell your house. If you want to put some funds aside in order to finance renovations, an FHA loan is the best option. Talk to a housing counselor to see which type of FHA loan might be best for your needs.