What is an FHA 203K Loan?
FHA 203k loan is a type of home financing offered by the government through the Federal Housing Administration (FHA). The loan is aimed at assisting low to mid-income earners purchase homes and also make significant repairs and renovations to the houses to make them fit for occupancy. This is different from the FHA loan, which only funds ready-to-move-in houses.
With the FHA 203K home loan program, you don't have to take out a separate loan to purchase your home and another one to renovate it. You apply for both, including the cost of materials and labor, and then repay it as a single loan. It's two loans rolled up into one. This makes it less strenuous for buyers to repay the loan.
However, note that the FHA 203k loan may attract a higher interest than conventional and VA home financing because of the mortgage insurance.
How Does FHA 203k Loan Work?
The FHA 203k loans are disbursed to borrowers through different lenders approved by the Department of Housing and Urban Development. The loans are given out at either a fixed or adjustable rate, and buyers can choose to repay in a 15-year or 30-year term.
The FHA 203k loan is considered a more flexible option to finance a home and fund considerable home improvements. Since the government insures the loan, it is easily accessible and comes with less stringent qualification terms and requirements than other types of home financing. Even though flexible, lenders must look at your credit history, income, and DTI, among other qualification factors, to approve your request.
The loan, which is the cost of the house and the renovation amount, is not paid to the buyer directly but disbursed to the relevant parties. It must be started within 30 days after closing and completed within six months. The renovation amount is paid to the sellers after the loan closing, and the contractor's cost is paid once all work is completed. Work covered must be done within the stipulated guidelines.
Types of FHA 203K Loans
An FHA 203K loan can either be limited or standard. A standard loan is applicable when a home requires significant structural improvements and repairs that cost more than $35,000 and not less than $5,000. These can be improvements like expanding the kitchen, adding a new bathroom, or correcting foundational issues that could turn hazardous.
To qualify for a standard loan, you must hire a consultant certified by the Housing and Urban Development to oversee the renovation project. You must also hire a certified contractor to work on the renovations.
On the other hand, a Limited or streamlined FHA 203K loan is typically used for non-structural repairs that do not cost more than $35,000. These include painting, replacing countertops, tubs and showers, and other cosmetic works. Unlike the standard loan, limited loans are easier to apply and qualify for because the sum borrowed is smaller. Also, the borrower won't need to hire a HUD consultant.
FHA 203k Loan Requirements
Home buyers must meet specific requirements to qualify for the FHA 203K loan. One of the essential requirements is that the house must be for your residence and not for commercial purposes. This means investors do not qualify for this type of loan. Other requirements include:
Approved lender - You must work with an FHA-approved lender in Hamilton County.
Income requirements - Borrowers of all income ranges can qualify for the loan. There is no minimum or maximum income required.
Credit score - You must attain a minimum credit score of at least 500. However, the most desired credit score by a majority of the lenders is 580.
Down payment - The down payment will depend on your credit score. For a credit score lower than 580, you must put down at least a 10% down payment. For a credit score that is more than 580, you can put down a down payment as low as 3.5%.
Debt-to-income ratio - Lenders require you to have a DTI of between 43-45% of your income. This factors in your projected monthly mortgage repayments for the house you intend to finance.
- Property type and purpose - FHA 203K only finances houses buyers intend to use as their primary residence. The house can be a 1 to 4-unit property or a single-family house. Also, the loan finances interior and exterior repairs for rural homes but covers interior repairs only for condos and townhouses.
Step by Step Process for Getting FHA 203k Loan in Hamilton County, Florida
Applying for an FHA 203K loan is not intensive but has a few more steps that aren't in other home loans. Here are the steps you will go through to secure an FHA 203k.
Step 1 - Find a lender - There are several FHA-approved lenders in Hamilton; find and talk to them. Request for their mortgage quotes and make a comparison. The goal is to find a lender with favorable interest rates and terms.
Step 2 - Get pre-qualified - Once you've found your preferred lender, apply for the FHA 203K loan and wait to be pre-qualified. The lender will walk you through the various sales and renovation amounts you can qualify for.
Step 3 - Search for a home - The best and easiest way to find a home is through a qualified and competent real estate agent. Start the search for your ideal home. Talk to real estate agents and visit syndication sites and listing platforms.
Step 4 - Find a contractor - Talk to a few homeowners to recommend a few good contractors. Request quotations from these contractors and vet them before settling for one.
Step 5 - Meeting the contractor - Schedule a meeting with your preferred contractor and discuss everything you need to be done in the home. Ask them to submit a bid.
Step 6 - Meeting an HDU- certified consultant - If your renovation cost exceeds $35k, this qualifies you for a standard loan requiring you to engage an FHA 203k-certified consultant.
Step 7 - Submit the contractor's bid - Submit the contractor's bid to the lender.
Step 8 - Appraisal - The lender will go through all your submissions and qualify you for a loan if you meet all the requirements.
- Step 9 - Loan Closing - The lender disburses money to the sellers and escrows the contractor's amount until they complete the renovation project.
Loan closing does not mark the end but the beginning of the next phase. Be sure to adhere to these guidelines in this next phase.
Issue all permits within 30 days of loan closing.
All major repairs must be done by a contractor and overseen by the HDU consultant.
Work must begin within 30 days after the loan has been closed.
Work can only stall for not more than 30 days after loan closing.
- All work must be completed within six months after loan closing.
Once renovations are complete, you can get ready to move into your new home.
How to Use the FHA 203k To Improve Your Home's Curb Appeal?
If your home is no longer functional or meeting the demands of your growing family, you can take an FHA 203K loan to remodel it instead of buying a new home or moving houses.
You can also take an FHA 203K loan to improve a fixer-upper home to a liveable state, do basic renovations, upgrade the home to a more modern one, and improve the home's curb appeal.
Here are a few ways to improve your home's curb appeal using the FHA 203k loan.
Replace the Windows with Large Ones
Large windows play a big role in letting in natural light, fresh air, and solar heat, significantly improving the home's curb appeal.
If your windows are small, you can use the FHA 203k loan to expand their windows. They will make the house look much better, especially if you replace them with stylish windows.
Replace Your Front Door
If your front door is outdated, your home may not look as appealing as you think. Given that it is among the first things people will see before entering your home, you may want to replace the door with a more modern and stylish one.
You may opt to repaint it instead, but you will still need to replace the hardware to make it look better. Your front door should reflect the inside of your home.
Install Outdoor Lighting
Installing lighting around the landscape is a great way to improve your home's curb appeal while providing security and safety on your property.
Incorporate accent lighting on trees and plants, solar lights along the walking path, and various fixtures to make a more significant impact.
Replace the Siding
An old siding can downgrade the home's aesthetics. To automatically transform the look of your home, consider stripping down the old siding and replacing it with modern, stylish sidings.
Choose long-lasting materials so your home can stay in great shape for years. Look for ways to add personality through texture and colors.
Repair the Pathway and Driveway
Any apparent cracks and broken paths will make the home look less appealing and more rundown. To transform the entry points, replace or repair the pathway and driveway.
Replace the Railings
The stoop and porch railings can quickly deteriorate, making the home's exterior aesthetic look unappealing. Replace the railings to improve the curb appeal. Make sure the railings' color, design, and detail complement the home's aesthetics.
Repaint the Home
Repainting is the surest way to reinforce your home's curb appeal. Choose colors that reflect your style; that way, you get to fall in love with your home every time you look at it.
Improving a home's curb appeal quickly boosts the home's value and makes a lasting impression.
Improving Your Home's Value Through Renovation in Hamilton County, Florida
You can do much with an FHA 203K loan to improve your home's value, livability, and curb appeal. You can do repairs, remodel your home, make sure upgrades and do general renovations to an existing home or a home you intend to purchase. A home's value is not only measured in the monetary sense but a home is also considered valuable if it suits the people living there.
For instance, if you want to put up your home for sale, you can get refinancing to make some upgrades and renovations that will increase the resale value. Particular renovations can pay you back up to 56% for every dollar you spend.
Some pay even as high as 70 cents per dollar. For an existing home, you can also renovate it to make room for your growing family, new interests, and preferences instead of buying a new house.
You can also buy a fixer-upper which costs much less than already renovated houses or new ones, and then make changes to your liking. For instance, you can expand the windows if you prefer large ones, add a garage, or replace the kitchen and bathroom countertops. All these changes will ramp up the monetary value of the home.
Types of Renovations that Increase Your Home's Value
Here are some renovations covered by the FHA 203K loan that you can consider making to increase the value of your new or existing home.
Adding some square footage
Replacing the kitchen countertops
Building a home office
Adding a new bathroom
Building a new pool or repairing the existing swimming pool
Replacing the single sink with a double-sink bathroom vanity
Installing a kitchen island
- Adding an ADU (Accessory Dwelling Unit) in the backyard
It's important to note that not every renovation will pay back. Some do not. Therefore, consult a real estate agent if renovating a home to sell it at a higher price. An agent will guide you on what areas to focus on.
Favorite Desserts in Hamilton County, Florida
Hamilton is a great city to live in. It has a more reserved attitude but with thriving communities. There are many things to do and places to visit all year round.
There are great places to quench your sugar thirst for the sweet tooth. Here are some favorite desserts and where to get them to satisfy that craving.
Cupcakes at Sugar Dessert Shoppe
Sugar has some of the best cupcakes around. Their cupcakes are flavorful, moist, and delicious to the last bite. Try the red velvet, banana pudding, and carrot flavors.
They also have a variety of cakes and cake pops and make birthdays, weddings, and cakes for all other occasions. The owner Holly is super friendly, and the bakery is always neat and clean.
Italian Ice cream at Naughty's
Naughty's is the best place to go for a complete experience if you are a fan of Italian ice cream. They have a vast range of flavors and are generous with the scoop sizes. Expect a long wait, though, especially during peak times.
Cinnamon Rolls at Panera Bread
The cinnamon rolls at Panera Bread are definitely worth the long waiting lines. They are fresh, flavorful, and have just the perfect texture.
Besides bread, they also have cakes and various other baked goods. Everyone at the shop is friendly, and the establishment is clean and orderly.
Cookies at Lily P's
Lily P's cookies are hands down the best cookies in Hamilton. You can tell that each cookie is a work of art filled with flavor and deliciousness. To make the cookies hold freshness, each piece is wrapped individually.
Even though a county with a small population, Hamilton County, Florida has a thriving real estate market. Nearly 72% of the population are homeowners, meaning there is a considerable market for fixer-uppers.
To make the best of these houses, residents can take advantage of the FHA 203K loan to transform them into valuable homes. FHA 203K is accessible to everyone and is considered easier to qualify for. The requirements are flexible, and the terms are less stringent.
To remodel, repair, upgrade or renovate the home. Both new homeowners and existing homeowners can use the FHA 203K loan. The latter can use the refinancing option to get funds to renovate their home. Provided the home is for a primary residence, you should have no problem qualifying as long as you are eligible.