FHA 203k Loan in Lafayette County, Florida

With a 203K loan, you can roll in the renovation costs of your fixer-upper in the total loan amount. Knowing where to start can be pretty challenging with so much misinformation online about renovation loans like the FHA 203K loan.

You first need to understand how the mortgage works and its requirements. If you are a Lafayette County, Florida resident, here's how to start with the 203K loan program.

A Background on the FHA 203K Loan Program

The FHA (Federal Housing Administration) was set up in 1934 to incentivize lenders to widen their loan coverages. At that time, defaults and foreclosures linked to home loans were alarming. Even more, low- and medium-income earners couldn't get loans to help realize their homeownership dreams.

As soon as FHA began its operations, it intervened in the mortgage market. The government agency entered into a partnership with money lenders, allowing first-time homebuyers with issues with credit score or credit history to secure home financing. A tremendous improvement in the economy was recorded since more people got access to affordable loans without facing the strict borrowing requirements associated with conventional home loans.

The FHA loan program has expanded to include home financing and improvement solutions such as the FHA 203K loan. The 203K loan enables low-income earners to buy used properties and modify them to match their tastes. It doesn't suit high-income earners, who prefer newer properties in highly developed cities.

Understanding an FHA 203(k) Loan

The Federal Housing Administration introduced FHA loans to the mortgage market to allow purchasing and renovating fixer-uppers or properties needing urgent repairs. Though most of these properties tend to be situated in senior communities, it's possible to transform them with the proper repairs.

With an FHA loan, you have the advantage of funding a home purchase as well as the renovation costs. It can either be an adjustable-rate mortgage or a fixed-rate home loan. You'll also make only one loan application to cover the two forms of financing and even be allowed to use part of the loan amount to pay for temporary accommodation as the home is renovated.

Mortgage Insurance and Interest Rates for 203K Loans

203K lenders charge high insurance rates on FHA 203K loans to recoup the most profit from them. While these rates are in the 0.75 percent to 1.0 percent range, they are relatively lower than conventional loan rates.

There's also a mortgage insurance requirement attached to 203K loans. This means you'll have to pay a 1.75 percent upfront fee and a 0.85 percent annual fee as mortgage insurance. The catch is that it's possible to roll over the upfront fee in the loan costs and pay the annual fee as 12-month installments.

203k Loans Vs. Construction Loans

It's no secret that FHA 203K loans serve as construction loans at some point since they cover the renovation costs of a home. However, the terms on a typical construction loan are shorter.

Construction loans also attract a higher interest rate than 203K loans. The finances are only disbursed in installments as the construction or renovation work continues.

Types of 203K Loans

203K loans fall in different categories depending on your use case. You can take the Limited 203K loan to carry out little modifications on your property or the standard 203K loan for great flexibility on the type of repairs to be carried out.

Irrespective of the 203K loan you prefer, you need to employ a licensed contractor for the repair job. You may also handle the repair job yourself if you have the required skills and certification.

Standard 203K

The Standard 203K loan is a convenient home loan solution that doesn't put a limit on the repair costs. With this type of loan, you can enjoy a minimum loan of $5,000. However, the home's value needs to be within the FHA loan limits in your region.

Standard 203K loans are ideal for repairs like kitchen and bathroom remodeling. You can also use it to cover improvements on energy-efficient systems, door and window replacements, plumbing, flooring, painting, and air conditioning systems.

The loan won't allow you to carry out extravagant renovations such as adding pavilions, tennis courts, or swimming pools to your property. You can find a loan that allows these additions if you desire to have them in your home.

Limited 203K

A Limited 203K loan can help you pay for modifications on your property that cost less. Its coverage centers on minimal repairs instead of structural work involving room additions and landscaping. Though the loan limit here is $35,000, ensuring that your property is habitable as the repairs are done.

Home Improvements that You Do with an FHA 203K Loan

As you plan to get an FHA 203K loan, the loan will only come in handy on your renovation project if they require no more than six months after closing. FHA loans cover structural alterations, reconstructions, improvements, and modernizations since they take less time to complete.

One of the best ways to benefit from the construction or repair work is to hire a 203K certified contractor. In this case, don't hesitate to ask the contractor about their expertise with the 203K loan program. The contractor should also understand the payment schedule and requirements.

After ensuring that all work is done, it'll be time to submit a completion letter to your lender. Once this is done, a HUD-certified consultant will review the work.

Acceptable Repairs

With a 203K loan, you are limited to different types of improvements and repairs. To be precise, a Standard 203K loan will allow you to do the following:

• Improvements and modernization to the property's function

• Changes aimed at eliminating obsolescence and improving the home's appearance

• Eliminating health and safety hazards

• Structural attractions, including reconstruction

• Adding or replacing floors or floor treatments

• Major landscape work and site improvements

• Reconditioning or replacing plumbing, including the installation of wells and septic systems

• Replacing or adding downspouts, roofing, or gutters

• Improving accessibility for people with disability

• Adding energy-efficient functions

What isn't Allowed by the 203K Program

An FHA 203K loan can't finance projects such as building a chicken coop on the modified home. However, you may be allowed to carry out various improvements on a mixed-use property with commercial and residential spaces if the project will only benefit the residential spaces.

The key here is that 203K loans are ideal when you want to enhance a home's function and visual appeal. You can't use the loan on improvements such as outdoor fireplaces, a satellite dish, tennis court, barbecue pit, swimming pool, and hot tub.

The FHA 203K Process Broken Down

The steps for applying for an FHA 203K loan are pretty straightforward. You first need to find a 203K lender since the Federal Housing Administration (FHA) only backs the loan. Lenders, in this context, may include banks or credit unions.

It's important to factor in the cost of home insurance and warranties separately from the loan. The FHA 203K loan doesn't offer these insurance packages. With this in mind, let's get into applying for, getting approved, and closing on a 203K loan.

• The first step is to find a FHA 203K lender with adequate experience in this type of financing. Compare mortgage quotes from different lenders until you find one that offers a great deal.

• After narrowing your options to one reliable lender, proceed to apply for the mortgage with hopes of getting a pre-approval letter from the lender.

• Arm yourself with the pre-approval letter (once you get one) when looking for fixer-upper offers that allow 203K financing. You should also refer to HUD's Maximum Mortgage Worksheet for updated loan limits as you shop for offers.

• Consider hiring a 203K consultant if the renovation costs exceed the $31,000 limit. With the consultant's expert services, you can approach different contractors for quotes within a particular work scope and price estimate.

• You should get a precise cost estimate for the renovation materials and scope of work from a HUD-certified contractor. The loan program only allows you to do the work yourself if you are a licensed builder working full-time.

• With your lender's green light to carry out the project, the property will need an appraisal to estimate its future value to ensure the loan amount is within this limit.

• The final step involves closing once the loan amount has been disbursed to your account. The contractor should begin working on the improvements at this stage.

Closing is also the stage where the seller gets paid while the remaining loan amount goes directly to the buyer's escrow account. Your lender or trusted agent will only allow you to use the funds to pay for the repairs if the work was completed satisfactorily. Once the project is done, you become an official homeowner.

FHA 203K Loan Requirements

Like other types of FHA loans, 203K loans have a set of qualifying requirements you need to meet. Here's a breakdown of these requirements and their impact on the 203K loan process.

Down payment, Credit History, and Credit Score

A 580 minimum credit score and 3.5 percent down payment amount are all you need to improve the likelihood of qualifying for an FHA 203K loan.

However, if your credit score ranges from 500 to 579, the only way to qualify is with a 10 percent down payment. On top of this, you must stay out of the mortgage market for at least three years if you recently suffered a foreclosure.

Mortgage Insurance Premiums

Expect to pay annual mortgage insurance capped at 0.45 percent to 1.05 percent of the loan amount in 12-month installments. The lender will also ask you to pay a 1.75 percent upfront fee as mortgage insurance, possibly rolling the amount over to your loan payments.

Loan Limits and Contingency Reserves

As for loan limits, only apply for a 203K loan in the amount relatively lower than the stated loan limits in Lafayette County. This is because lenders only award finances to borrowers based on what is reflected in the loan limits in their respective regions.

You also need a contingency reserve to help you keep 20 percent of the renovations to cater to uncertainties. And if a contingency reserve won't work for your case, you can pay for the unexpected expenses out-of-pocket. However, you need to have disposable income for your lender to allow you to take this route.

Home Value

The value of the house you want to renovate predominantly affects the maximum amount you can borrow in the FHA 203K program. In this case, your lender will give you a loan amount that reflects the home's "after-improved" value. This gives you more flexibility and borrowing power, unlike other renovation loans that use the property's current "as-is" value to set the loan amount.

Your 203K lender will ask an FHA-approved appraiser to appraise the home, formulate a work plan, and give estimates of the expenses to determine the property's value once renovations are over.

FHA 203k Loan Refinancing

Did you know that the 203k loan program can allow you to renovate your current primary residence or purchase a fixer-upper using a refinance loan? The good thing here is that the refinance loan has several similarities with the traditional FHA refinance loan. It requires you to meet the minimum qualifying requirements of an FHA 203k loan.

Once you get the refinance loan, you can use part to clear your outstanding mortgage balance and have the remaining money deposited safely into an escrow. It's also possible to refinance your current 203k home loan with the FHA Streamline solution, which offers a lower rate.

Fun Things to do in Lafayette County, Florida

With its strategic position in the north-central part of Florida, Lafayette County comprises many great places to relax, lower your stress level and have fun.

You can check out the spring parks, go for paddling and fishing, or camp at these spots as discussed below:

Visit the Spring Parks

Lafayette County, Florida, consists of numerous spring parks, including the Lafayette Blue Springs, which features the Suwannee River Wilderness Trail.

Lots of camping spaces and cabins are available at this spot. You can also check out Convict Springs, Owens Spring, Ruth Springs Park, and Troy Spring State Park for your exploration.

On-Road Cycling

If riding bicycles is your thing, there are two fabulous on-road bicycle trails in Lafayette County, FL. These trails include the 24-mile Mayo Loop connecting Mayo to Convict Springs and the 21-mile Mayo to R.O Ranch out-and-back.

Play Your Favorite Sports at Edward Perry Sports Complex

As a large sports complex with numerous courts and fields, the Edward Perry Sports Complex is a great spot to play your favorite sports. You can explore the picnic pavilions, tennis courts, basketball courts, baseball fields, and walking track at the complex for fun.

Have a Picnic at Veteran's Memorial Park of Mayo

Veteran's Memorial Park of Mayo is a lovely spacious park with picnic tables, a kids' playground, picnic pavilions, and a band pavilion. There are many old oak trees for shade and plenty of sitting areas for relaxation.

Spring Swimming at Owens Spring Tract

Owen Spring Tract features a spring swimming area that you can check out if you fancy spring swimming. The site has a rope swing that you can use to jump in the water and an underwater cave for scuba divers to explore. Besides swimming, you can hike, ride horses, or fish around Owens Spring Tract.

The Bottom Line

An FHA 203K loan is a convenient solution if you want to combine a home loan and a renovation loan into one. Review your lender options to get a 203K loan that suits your situation. We are here for you when needing an FHA 203K loan in Lafayette County, Florida.