FHA 203k Loan in Escambia County, Florida

But as home prices continue to increase, some potential homebuyers find it challenging to acquire property. If that describes your situation, no need to fret; there might be a way out!

Suppose purchasing the home of your dreams is proving to be quite an unrealistic option; you might want to consider going for a fixer-upper. “But how would I finance the necessary repairs?” – you may ask. This is where an FHA 203(k) loan comes in – to help you purchase a home and cover the renovation costs, all under one mortgage.

What is an FHA 203k Loan?

A 203(k) rehab loan is a type of house financing or refinancing that offers homeowners and potential home buyers a single mortgage that covers both real estate and renovation costs. In simpler terms, it enables home buyers looking into acquiring a fixer-upper that needs considerable rehabilitation efforts and various repairs to bundle the property and renovation costs into a single home loan.

However, remember that a 203(k) rehab loan might not be the best option if you wish to make more great upgrades to the property. For such a case, you might want to consider a conventional mortgage.

Remarkably, the FHA 203(k) loan is not a “strictly home buyers’ club” – current homeowners who could like to refinance their property to obtain a single mortgage to pay for an impending renovation can apply too! So, if you wish to refinance or buy a property that appears to demand significant enhancements and repairs, a mortgage rehabilitation loan could be your go-to option.

How an FHA 203k Loan Works

Again, 203(k) loans are backed by the Federal Housing Administration. And the funding you get from the renovation loan, which can either be an adjustable-rate mortgage (ARM) or a 15- or a 30-year fixed-rate mortgage, can be leveraged to cover labor and material costs.

Even better, an FHA 203(k) loan boasts more flexible minimum qualifications and terms than conventional home loans – arguably their most significant selling point – as they are government-insured. It works by rolling repair and home renovation costs into one amount, which you can settle over time by simply making your monthly mortgage premiums.

As such, rehab financing makes an ideal, cost-effective choice if you’re looking to finance multiple home renovations, especially those that you consider significant. But like any other home loan, there are qualification factors like your income, FICO score, credit history, debt-to-income ratio, and other variables that the lender has to evaluate to determine your eligibility for an FHA 203(k) loan.

Moreover, remember that all the projects you intend to finance with your rehab loan must begin within 30 days of closing and take no more than six months to finish.

Types of FHA 203k Loans

There are two types of FHA 203(k) loans:

Standard 203(k)

The standard 203(k) loan is purposed for extensive rehabilitation or remodeling projects. And according to the FHA, the program must utilize the services of an FHA-approved consultant, who will monitor the licensed contractor’s work from quote to completion.

This 203(k) loan is only used to finance structural modifications such as room extensions, not “fancy” additions like outdoor fires or swimming pools.

To give you better insight, here are a few projects that qualify for a standard 203(k) loan:

• Finish an attic or basement
• Add a detached garage if there isn’t one
• Add square footage through space addition
• Repair the pool
• Install a retaining wall to deter flooding
• Open up the floor pan by knocking down walls
• Fix issues with the foundation
• Increase the windows’ size for more lighting

Streamline 203(k)

Unlike the standard counterpart, the streamlined or limited 203(k) loan is intended for minor tweaks and repairs. Since it doesn’t allow for any structural work, you won’t use it to add rooms or demolish some walls.

Some cases even allow borrowers to handle some of the remodeling work - you must involve a licensed contractor in the process, though.

Some projects that qualify for a Streamline 203(k) loan include:

• Update plumbing, electrical, and HVAC systems
• Replace siding
• Repair septic
• Add downspouts and gutters
• Replace showers and tub
• Paint
• Roof Repair
• Replace countertops in baths and kitchen
• Refinish flooring
• Replace windows for enhanced energy efficiency

Cost of Section 203(k) Loan

Like other refinances and mortgages, FHA 203(k) loans are no exception to closing costs, which are often 2% to 6 % of the property’s sales price. Some lenders, nonetheless, may demand additional costs for this form of funding.

The closing costs to be paid by the applicant are determined under guidelines set by the FHA. Any other expenses usually are not approved and are the provider’s or lender’s responsibility (if you’re looking to refinance an active mortgage).

Some potential costs include:

• Property survey
• Lender origination fee
• Title search and title insurance
• Inspection and appraisal fees
• Credit report check

Further, remember that an FHA 203(k) loan also requires a mortgage insurance premium payable upfront – typically 1.75% of the overall amount. You’ll also have to pay a monthly mortgage insurance fee based on your mortgage term, LTV ratio, and loan amount. Luckily, you can roll this cost into your loan.

Finding an FHA 203(k) Loan Lender

A 203(k) loan can only be issued through an FHA-approved lender. Through HUD’s lender list, you can look for lenders approved to offer FHA renovation loans in your area, in our case, Escambia County, Florida.

Quick tip? Since the FHA 203(k) requirements and application procedure often prove complicated, be sure to pick a lender with previous experience in 203(k) loans.

FHA 203(k) Loan Requirements

Potential property buyers or homeowners must satisfy the essential criteria to qualify for an FHA 203(k) loan. These conditions are identical to those of a regular FHA loan, and they include:

• You must work with an FHA-approved lender.

• A credit score of at least 500.

• A 3.5% down payment if you have a credit score of 580 or higher. Or a 10% down payment if your credit score is lower.

• A front-end debt-to-income ratio (DTI) of not more than 31% and a back-end DTI not exceeding 43%. Depending on your lender’s guidelines, you can have a slightly higher DTI if your credit score is much higher.

• The property must be your principal residence.

• Renovations and repairs must be conducted by a licensed contractor, not by you, the borrower.

FHA 203(k) Loan Refinancing

Remember, FHA 203(k) loans can only be leveraged to acquire a fixer-upper or refinance and renovate your primary residence. The procedure of refinancing into a 203(k) rehab loan isn’t any different from that of a typical refinance, but there are additional conditions you must meet to qualify.

After refinancing, some funds will be used to settle your original mortgage. The remainder is then held in escrow until the renovations are done.

You can also use the FHA limited program to refinance your existing 203(k) mortgage, which could see you enjoy a much lower interest rate.

Pros and Cons of FHA 203(k) Loans

Like any other mortgage, the FHA renovation loan has its upsides and downsides. They include:

Pros

• Offers a single mortgage to cover both purchase and repairs

• Lenient credit score and down payment requirements

• Relatively lower interest rates than other home renovation loans, credit cards, and personal loans.

• Can cover temporary housing while the primary residence is undergoing renovations

Cons

• Requires FHA mortgage insurance

• Isn’t allowed for investment or commercial properties

• Strictly requires the involvement of an experienced contractor and a HUD consultant

• A lot of paperwork for more extensive repairs

Don’t Move Out!

If you’ve had to relocate in the past, you can agree that moving is nothing but daunting, stressful, and inconvenient at the least.

But with an FHA 203(k) loan, moving out of your house just because you can’t afford to pay for the required repairs and improvements won’t be necessary. After all, all you need to do is apply for this rehab loan and use it to shape your dream home out of your current home.

And if you’re looking for a few great renovation recommendations, here are some to look into.

Add a New Bathroom

Having only one bathroom can prove inconvenient, especially during the holidays when you have some relatives or friends over. You’ll often find yourself queuing while waiting on each other with only a single facility.

However, this does not have to be the case. With an FHA 203(k) loan, you may add a new washroom and eliminate the clutter. Even better, you can also improve your current bathroom.

Add More Square Footage to Your Property

You may have various reasons justifying the expansion of your home’s square footage. For instance, having an extra room may prove convenient, especially if you have a guest or two staying with you. If not for visitors, the additional space could provide some of your household members the privacy they require.

Further, additional square footage could translate to a higher home value, which is excellent if you plan to sell your home at some point. Experts estimate that adding 1,000 square feet to your home will increase its market value by at least 30% – impressive news for homeowners.

Fortunately, expanding the square footage of your house is simple, especially if you cut it for an FHA 203(k) mortgage.

Add Cosmetic Touches

You may have heard the terms: adding cosmetic touch-ups and sprucing up. And while they are commonly used, not everyone comprehends their meaning.

In simple terms, they are expressions that tell you your property doesn’t look as inviting or appealing, maybe due to visible nail holes, peeling paint, stinky carpets, etc. However, you can fix such faults to enhance your home’s appeal while increasing its value simultaneously by simply making the necessary cosmetic touch-ups.

And even if you can’t afford these cosmetic touches, you can still get them done by simply getting an FHA 203(k) loan to cover the expert assessment and renovation expenses.

Upgrade or Repair Your Pool

Having a pool in your yard is terrific; it does prove valuable when the temperatures are harsh and during summer.

Now, pay close attention here. Swimming pools and FHA 203k loans have a tricky association. The FHA considers swimming pools a luxury, so funding their installation and other similar features is not allowed. Better put, you can’t utilize your FHA 203(k) loan to create an oasis in your backyard. Why?

But what if one already exists, only that it can’t be used because of its odious condition? For such an instance, you can use an FHA 203(k) loan to cover the repair. However, keep in mind that not all lenders accept pool renovation; therefore, look for one that does if this benefit is essential to you.

What Renovations Mean to Your Home Value

Modifying particular areas of a single-family home is an excellent way for homeowners to increase the functionality and appeal of their property.

However, this is not always achievable because of the high cost of renovations. But, thanks to the 203(k) loan, none of this needs to be a headache.

So, how do these improvements impact the property value?

First of all, when you’re ready to begin your property renovation project, be sure to prioritize the upgrades that will add the most value. A kitchen makeover, for example, is a typical high-ROI project as it adds value at the expense of minimal destruction.

Specifically, cabinet refacing, interior painting, new flooring, kitchen appliance replacements, and hardware upgrades might yield a 72% return on investment, which is pretty good. Other than the kitchen, you can enjoy an ROI of 70 to 78% by simply remodeling your bathroom.

The examples above are just a few to demonstrate how renovations can significantly increase the value of your property.

Applying for an FHA 203(k) Loan in Escambia County, Florida

Here are a few simple steps to follow when applying for an FHA 203(k) loan:

• Apply with an FHA-approved lender in Escambia County, Florida.

• Get approved for the mortgage - The lender will check all the necessary information to determine if you qualify.

• Pick a licensed contractor to work with - Remember to consider contractors with previous experience in 203(k) loan renovations.

• Request bids for the renovations - Obtain the accurate official bids.

• Submit everything to your lender - After providing the lender with all the necessary information, your loan can undergo final approval.

• Close the loan - Sign the final loan documents, after which you are the official homeowner.

• Allow the contractor to commence on the projects - Depending on the repairs’ extent, you could move in already. However, for more significant improvements, arrange for temporary housing.

• Move in - Work is done, and you now own a beautiful home.

Top 5 Desserts in Escambia County, Florida

The many restaurants in Escambia County will undoubtedly satisfy all cravings you can have. But not all treats will do whenever your sweet tooth cries out loud. And just like your outdoor adventures, your quest for the best dessert should be but another big excursion.

Fortunately, Escambia County, Florida, swanks plenty of amazing desserts you can count on to give you the sought-after memorable experience. A few include:

Chocolate Chip Pancakes

Breakfast is arguably the one meal with the most flavorful delicacies. Speaking of breakfast delicacies, nothing beats a plate of steaming hot pancakes on a leisurely morning.

Remarkably, most restaurants in Escambia County offer the chocolate chip version that’s often presented with just the right amount of icing sugar. And if you’re searching for a more decadent flavor, try adding some whipped cream and chocolate syrup - purely heavenly.

French Toast

Sure, French toast is an outstanding dessert choice, which isn’t surprising given the sensation it delivers. This hearty treat often includes three slices of French toast, which you can have served with whipped butter and syrup. Combine this with your choice of bacon or sausage and hear your taste buds sing.

Pralines

Pralines are not easily found just anywhere. If you crave this treat, Escambia County is one of the few places to have the best. For a more memorable experience, these crunchy pecan pralines are best served alongside fresh berries, vanilla bean ice cream, and chocolate and caramel chocolate sauce. So, ensure to get yourself a plate!

Apple Pie Gelato

If you are one for pies and frozen desserts, you are in for a treat! This Escambia County treasure offers an intriguing gelato taste that replicates the cozy satisfaction of apple pie while keeping you cool on a hot day. Even more impressive, the apple pie isn’t the only flavor available; there are many other memorable and tasty options to try.

Nutella Banana Crepe

Crepes are delicious on their own, but with the touch of creamy Nutella, it gets even tastier. Including just enough bananas makes it easy to think you’re on a healthy diet. It makes an ideal treat to serve alongside a cup of coffee before heading out for a fun day.

So, What’s Next?

Whether you’re a first-time home buyer or a longstanding homeowner, an FHA 203(k) loan may prove a suitable alternative if you seek an affordable financing option to upgrade or remodel your home.

Quick tip? Compare options to land the FHA lender best suited to your situation and see what works best for you. Best of luck with your application