Are you a fixer-upper who would rather hire a professional for remodelling work than taking on a DIY project? Then the FHA 203k home renovation loan may be the perfect option for your home financing.
But first, let’s go over the Fha 203k loan for home addition, it’s requirements and program options.
FHA 203k Loan for Home Addition
Can you add an addition with a 203K FHA loan?
Yes, you can use a 203k loan to add an addition. This is super common with renovation loans like the 203k. You can do this during a 203k refinance transaction or a 203k purchase loan. Adding square footage to your house will always add to the value of your property.
The common rule that applies to renovation lending is; you must add value to your property with the renovations completed. Luxury items such as built-in swimming pools are not allowed. However, updating kitchens, bathrooms, and adding additions are some of the most typical renovations completed in this loan program.
In what state do you want to use the 203k? I would be happy to assist you or answer any further questions. Please reach pout to US at CONTACT.
Do you already own a homer? This home loan can work as a refinance to offer additional cash for renovations and repair. The types of repairs are much more limited but can include upgrading or replacing roofs, appliances or HVAC, non-structural home repairs, deck repair, lead-based paint abatement, and disability modifications.
Typically speaking, the repair costs are added to the amount of the existing loan balance to determine the total loan amount. But, the new loan amount cannot exceed 110% of the future appraised value.
It’s vital to note that you cannot get cash through a 203k refinance. All funds go directly to the contractor. If you’re interested in accessing cash, consider one of the many other loan programs that participate in a cash-out refinance.
How Do I Know If My Property Is Eligible?
Now that you know that FHA 203k Loan for home addition is possible, let’s find out if your property ios available.
Your real estate agent can aid in the identification of properties eligible for the 203k loan. Though generally speaking, qualifying homes include:
- A one- to four-family house that has been completed for a least a year
- A house that you want to relocate to a new location (foundation)
- The house cannot be an investment property or a co-op, but some condos are eligible
- An uninhabitable house that has been torn down, as long as some of the existing foundation is still in place
You’ll thread on an all familiar path when starting the 203k mortgage process. First, you’ll meet with a 203k approved lender to get mortgage pre-approval. Once that is secure, you’ll work with a real-estate agent to find an eligible property. Since the loan comes with rehab costs, you must include a detailed list of repairs that will need to be made and the price for each repair. You’ll need to seek bids from general contractors to understand cost estimates, and of course, pick one of them. The contractor will need to offer a final estimate to your lender.
Next step is the appraisal, which reveals the future appraised home value. This is where you get back to somewhat of a “normal” mortgage process, as your loan moves into conditional approval, underwriting, and closing.
Once papers are signed, some of your borrowed funds move to escrow. Escrow is how your repair costs are paid, although, more common than not about 50% of repair costs are issued to your contractor upfront. The rest is paid upon project completion.
Things To Consider
You Have To Stay On Track
You’d have to keep a close watch on your project(s) as you’ve committed to a 6-month project deadline. Plus, renovations must start within 30 days of loan closing, so you’ll need to be sure your contractor is ready to go (and all materials arrive and is received in time). Do not be afraid or shy to ask for help from a 203k project consultant or coordinator.
You can’t DIY
As stated earlier, this is not a loan created for DIY’ers. If you prefer to install flooring or make cosmetic alterations, you’ll need to discover a different finance option, like home equity loan, a cash-out refinance, or HELOC. Or, if your projects lean toward energy efficiency or “green”, you may want to consider a PACE (Property Assessed Clean Energy) loan.
Your home may be considered unlivable
Some renovations are so big (like room additions or structural changes), you’ll need to live off-premise. Fear not. If the home is marked to be unlivable during this period, the 203k loan can include a provision to provide borrowers with up to 6 months of temporary housing costs.
You’ll be charged extra fees and reserves
The 203k rehab loan comes with extra reserve requirements and fees. They can total 10% – 25% of the cost of your rehab project, though; they can be added to your loan along with the repair costs. Fees can include: architectural fees, draw inspection fees, title update fees, loan origination fees, 203k consultant fees, and permit fees.
Ready to apply?
We would love it if you discuss your plans for the 203k home renovation loans with us todat. REACH OUT TO US ASAP.
With this, we end our article on FHA 203k loan for home addition. We are looking forward to hearing from you via email or contact.