FHA 203K LOANS

WHAT IS A FHA 203K LOAN?

A 203k loan is a federally insured mortgage for those who wish to restore or renovate a house that will become their primary residence. The FHA 203(k) loan provides financial coverage for the purchasing of a home and/or repairs and related expenses, combining them into the same mortgage. Mortgages in the private sector have high down payments compared to FHA 203k Loans. This financial solution is more affordable and extends home ownership and improvement opportunities to those who cannot afford them otherwise.  The FHA 203k Loan is an amazing tool for homeowners and the improvement of their surrounding communities.

 PROCESS OVERVIEW FOR FHA 203K LOANS

1 |  CONTRACT OVERVIEW FOR FHA 203K LOANS

  • Before you start to explore physical properties, you need to consult a Renovation Loan Specialist

  • The specialist will need to ask some fundamental qualifying question for your loan. This will give the lender an accurate depiction of the borrower’s current lending situation.

  • These qualifying questions can include:

    • budgeted down payment

    • total loan amount

    • employment

    • income

    • credit history

  • With this information, the lender will start homing in what improvements need to be made to the home and property and which loan program is best suited for the borrower’s financial goals and needs.

  • It is recommended to work with your real-estate agent when contacting a lender. Agents can assist in finding great deals on homes that fit your requirements and qualify for the FHA 203k loan program.

2 |  ANALYSIS OF INITIAL MARKET

  • After working with your lender to create the Pre-Qualification Letter for your loan, the search for the perfect property can be initiated. This letter states the maximum loan amount you can receive and the terms for your budget.

  • When a prospective property is found, it is necessary for your real estate agent to conduct a preliminary analysis of the property to gage where it fits within the current market. This analysis is done in tandem with a Licensed Contractor, like Karma, and your 203k Consultant. Together they produce an accurate estimate of the current value of the property, and the projected value post renovation. This estimate needs to be completed before signing any sales contract or pledging monies for an appraisal.

  • Analysis of Initial Market should include:

         -  Necessary scope of work to properly renovate the property - 203K Specialist

         - An estimate for the labor and work needed to complete the project - Contractor

         - The properties projected market value on project’s completion - Real Estate Agent

 

3 |  SALES CONTRACT 

  • The sales contract must include specific provisions about the buyer’s FHA 203k financing application. The contract must be contingent upon the buyer’s approval of any supplementary work additionally requested by Lender or HUD.

4 |  ESTIMATE, SCOPE OF WORK, & HUD CASE NUMBER

  • With the sales contract constructed, the buyer will work with 203k Specialist and a Contractor to produce a Specification of Repairs based on the estimate and market analysis. This Specification of Repairs will allow the Contractor to start bringing in various bids for the project. At this point your lender will be able to apply for the HUD Case number, one step closer to the appraisal phase.

  • A Consultant is not required for Streamlined 203k loan, however it does note hurt to have experience on your side.

 

5 |  FIRM COMMITMENT APPLICATION

  • On completion of the appraisal and approval of the contractors bid, the lender will issue a Conditional Commitment and Statement of Appraised Value to ensure the highest insurable mortgage amount for the property.

6 |  MORTGAGE LOAN CLOSING

  • There are specific pre-closing documents that are necessary for the mortgage closing. These required documents, like the Rehab Loan Agreement, must be completed jointly between the lender and borrower. These pre-closing documents outline the conditions that must be met for lender to able to appropriate moneys from the Rehab Escrow Account.

  • These conditions can include construction draw schedule, fees schedule, work item change orders and identity of interest statement.

 

7 |  CONSTRUCTION BEGINS

  • The Rehab Escrow account is established and the mortgage funds are distributed at closing.

  • It is required that construction being within 30 days of closing. However, if planned correctly with your contractor, work can start immediately after closing.

8 |  RELEASE OF ESCROW ACCOUNT FUNDS

  • Funds are distributed amongst the various contractors in accordance with the Loan Agreement.

  • Consultant or Lender’s Fee Inspector will inspect any changes made to the work write-up. These are created through written change orders.

Taking on a large scale renovation can drastically increase the value of your home while creating the ambiance and style you deserve. Karma puts a special focus on the design phase of any project we take on. Our team of licensed professionals has decades of experience. Our success is driven by premium results and a core focus on customer service.

 

Please see BELOW for information on how to contact us or schedule an estimate.  Karma has provided information and tips that will help and inspire your remodeling project. Turn your dream into reality. 

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