Is a 203K Mortgage Right For You to Buy Your Dream Home?

With more and more distressed properties hitting the market, mortgage lenders, including Wells Fargo, increasingly offer FHA Section 203k mortgages. The loans finance both home purchases and residential improvements, allowing buyers to purchase dwellings with possibilities and transform them into dream homes.

In many instances, homes are in prime locales but need some work; and experts say the 203k mortgage program lets average buyers snap them up.

What is the minimum amount of repairs required on a FHA 203k home improvement loan?

There is a minimum $5,000 requirement of eligible home improvement loan projects on the existing structure of the property. Minor or cosmetic repairs may be included after meeting the first $5,000 worth of repairs.

What are some of the repairs that qualify for the first $5,000?

•    Structural alterations and reconstruction: (Repair or replacement of structural damage, chimney repair, additions to the structure, installation of additional bath(s), skylights, finished attics and/or basements, repair of termite damage and the treatment against termites)
•    Elimination of health and safety hazards.
•    Changes for aesthetic appeal:(New siding, adding a dormer, covered porch, attached garage).
•    Air Conditioning or replacement: (plumbing, heating, air conditioning and electrical systems).
•    Installation of well, septic system or connection to public utilities.
•    Roofing, Gutter Downspouts, Flooring, Tiling and carpeting.
•    Major landscape and site improvement
•    Improvements to improve accessibility and functions for the disabled.

What are the qualifications to be able to obtain a FHA 203-k loan?

The qualifications requirements are the same as a typical FHA mortgage loan. The only additional item that the borrower needs is either enough cash reserved to pay for materials and labor until they are reimbursed through a draw, or a credit card with an adequate available balance. If there is to be a contractor involved, the contractor may choose to cover these costs.

The interest rate on a typical FHA 203k mortgage loan is a little higher than a standard FHA or conventional 30/15-year fixed-rate loan. The cash requirements are the same as an FHA loan, 3 percent to 5 percent, which is less than a typical conventional loan. There are a couple of additional fees which pertain to the construction aspects of the FHA 203k loan.