The Handyman Special 203k loan could keep your clients from running for the door
Help your clients create the home of their dreams. Introduce the Department of Housing and Urban Development’s FHA 203k loan to them. This Handyman Special (203k loan) allows a customer to purchase or refinance a property. The 203K loan lets customers finance the cost of rehabilitation with one loan and one closing. Are your buyers interested in a property that does not meet FHA appraisal standards? Do the buyers want to do more work to meet their personal needs? Since all of this can be addressed with the Handyman Special (203k loan), you might want to introduce it to them. HUD strongly encourages the 203(k) program. And the loan is now easier to close than ever before.
Before You Read More
You might be interested in some pictures of previous 203(K) loans. So here are two previous blog posts:
- Functionally Obsolete House Improved with 203k Loan
- Thrilling Total Home Renovation with a 203k Loan
Borrower Must Use Mortgage Proceeds for Property Improvements
Several simple guidelines apply to the 203(k) loan. First, the borrower must use the mortgage proceeds in part for rehabilitation and/or improvements to a property. And there is no minimum cost of repairs and/or improvements to be done. Acceptable repairs include those that may affect the health and safety of the property. Also, acceptable repairs may improve functionality and modernization of the property.
A borrower may not use the funds from this program for luxury items and improvements that will not become a permanent part of the real property. So, for example, installation of a barbecue pit, bathhouse, dumbwaiter, exterior hot tub, sauna, spa, outdoor fireplace, photo mural, swimming pool, gazebo, television antenna, satellite dish or tennis court would not be permissible.
Visit HomeBridge.com to learn more.
Fannie Mae HomeStyle Loan
The Fannie Mae “HomeStyle” loan mirrors the FHA 203(k). It is underwritten with FNMA credit, property and loan limit guidelines. Some of the differences include:
- 95 percent loan to value ratio (LTV)
- 80 percent down – no mortgage insurance (MI)
- 85 percent LTV investor product
- The borrower does not need a prior certificate of occupancy
- Maximum renovation allowed is 50 percent of the sales price
- The borrow may use the funds for luxury improvements.
Learn more at Fannie Mae.
203(k): How Does it Work?
- The Sales Price plus Improvements (Acquisition cost) equals the loan amount
- The borrower may have a higher loan amount for two- to four- unit buildings
- The projected value (Future Value) of the property must support the Acquisition cost
- The Handyman Special (203k loan) Loan amount may equal 110 percent of the Future Value of the appraisal
- The rehab/improvement work is to be completed after the loan closes. So the current property condition is not an issue in closing the loan
- The funds for the work to be done are placed in escrow with construction draws to follow
- Only an owner-occupant can use this program
- Standard FHA down payment, credit guidelines and loan limits apply for owner-occupants
- Sometimes a house is not habitable during a renovation. Therefore, the borrower may finance up to six months of mortgage payments. And the borrower does not need to make any cash payment during construction
- The 203(k) program may be assumable for qualifying customers.
Permissible Properties for 203K Loan
- One- to four-unit properties that satisfy local zoning requirements. And completed at least one year prior to closing
- Homes must have a certificate of occupancy older than one year
- Homes demolished or razed as part of the rehabilitation process, if part of the existing foundation system remains intact
- Any property the buyer wishes to convert from a single-family dwelling into a two- to four-family dwelling. And vice versa
- A “mixed use” residential commercial property, if it meets certain requirements. Case by case at HomeBridge.
- Condos that satisfy specific guidelines. However, cooperatives are not eligible.
Acceptable Improvements for a Handyman Special (203K Loan)
- Structural alterations and reconstruction
- Changes to improve functionality and modernization
- Elimination of health and safety hazards
- Changes for aesthetic appeal and elimination of obsolescence
- Reconditioning or replacement of plumbing, heating, air conditioning and electrical systems
- Installation of a well or septic system
- Roofing, gutters and down spouts
- Flooring, tiling and carpeting
- Conservation improvements
- Major landscape work
- Improvements for handicapped accessibility.
- Purchasers carry only the cost of one closing, hence simplifying their finances
- Brokers, agents and other parties can be paid before the renovations are completed
- Purchasers can create their dream home with a small down payment and minimum hassle.
I’ve got answers! Please give me a call. I’d love to work with you!