FHA 203k Loan in Pasco County, Florida

Herein is a comprehensive overview of everything you need to know about FHA 203k loans.

What is an FHA 203K Loan?

An FHA 203k loan or Section 203k loan, also known as a mortgage rehabilitation or renovation loan, is a loan insured by the federal government that allows you to purchase a home and finance necessary renovations to become your home's primary residence.

The FHA 203k loan program is meant to enable low to moderate-income households to purchase homes that need repairs (fixer-uppers) and repair them under a single fixed or adjustable-rate mortgage.

When purchasing a home that needs repairs, you often have to find multiple sources of financing with home improvement loans, usually with short repayment terms and high-interest rates. An FHA loan affords you access to an affordable long-term financing option.

This housing finance program enables private lenders to offer home buyers and homeowners a single mortgage product that covers a property's purchase, refinances, and renovation. As a current homeowner, you can also apply for a mortgage rehabilitation loan to refinance your property and fund a future renovation under a single mortgage.

Usually, private lenders aren't open to offering mortgages for properties that require significant repairs due to livability and safety standards. An FHA 203k loan, which the federal government guarantees, offers reassurance to lenders since the cost of rehabilitation is included in the mortgage product.

This housing program protects lenders by having the loan insured before the final value and condition of the home can offer adequate security. As such, lenders can provide more flexible qualification terms, lenient credit, down payment requirements, and favorable interest rates.

How Do FHA 203K Loans Work?

The total FHA 203k loan amount covers the property's purchase price, closing costs, and the cost of rehabilitation, including materials and labor. A HUD-approved contractor must perform the renovations and repairs; you cannot perform these projects yourself as the borrower.

Once the property and closing costs are paid for in full, the remaining funds are placed in an escrow account. The funds are disbursed from the account to pay for the renovations as they are completed. You have 6 months from the time the loan closes to complete your rehabilitation project.

An FHA loan can also cover temporary housing funding when necessary. This may be in the form of rent as the home is under rehabilitation.

Standard 203k Loan

A standard 203k loan provides financing for major renovations such as extensive structural and repair work that you want to make in a new or existing property. The minimum amount that you can borrow under this program is $5,000.

There is no set maximum amount for rehabilitation, but the home's total value must fall within the FHA mortgage limit for Pasco County, Florida.

A standard loan is available for purchase and refinance, and you can roll 6 months of payments into the loan. The standard loan amounts to up to 110% of your home's value after renovation. Note that a standard 203k loan requires you to use a consultant certified by the Department of Housing and Urban Development (HUD).

Typically, your loan officer will help you enlist the services of a HUD-approved consultant. The HUD consultant draws up paperwork and collaborates with you and the contractors to obtain a write-up before the appraisal. The consultant also ensures the necessary renovations are completed according to FHA minimum standards and guidelines.

Limited or Streamline 203k Loan

A limited or streamlined 203k loan provides financing for minimal cosmetic repair works in a home that doesn't need structural renovations. Through this program, you can borrow a maximum of $35,000 for renovations. With a limited 203k loan, there are no minimum cost requirements attached.

This loan type allows you to access funds to cover minor property improvements quickly. Renovations you can complete with a limited loan may include cosmetic remodeling of the kitchen and bathroom, new carpeting or flooring, window and door replacement, and plumbing repairs.

Note that you cannot roll major structural renovations in the sums you seek to borrow under this program. The application for this type of loan is more straightforward than a standard loan because of the lower borrowed sums. Unlike the standard loan, a limited loan doesn't require a HUD consultant.

FHA 203k Loan Eligibility Requirements in Pasco County, Florida

Like other available mortgages, homebuyers must meet specific requirements to qualify for an FHA 203k loan. Below are your requirements to be eligible for the FHA 203K loan.

Income limits

There is no income limit to participate in the FHA 203k loan program.

Credit

If you have a FICO credit score above 580, you qualify for maximum financing of 96.5% of the home and rehabilitation value. If you have a credit score between 500 and 579, you will be eligible for maximum financing of 90% of the loan value.

If you have a credit score below 500, you do not qualify FHA insured financing. If you have a short or non-traditional credit history, your loan will be underwritten using manual underwriting procedures, which are considerably stricter than automated underwriting processes.

First-time homebuyers

The FHA 203k loan program is open to all homebuyers, and you can participate as a first-time home buyer. You can also utilize the housing financing program to refinance an existing home.

Ownership and occupancy of other properties

You can only participate in the FHA 203k loan program as an owner-occupant. This means the property has to be your primary residence. Investors cannot participate in the program.

Under the Mortgage rehabilitation program, the property's original construction must have been completed for at least one year. This requirement ensures that you use the 203k loan only to repair an existing property and not construct a new one.

The property types that are eligible for FHA 203k loans include:

• Single-family residences (one to four units).

• Condominium units in FHA-approved condominium projects.

• Mixed-use property (one to four units).

• Manufactured housing – the rehabilitation must not impact the structural components.

Loan limits

FHA 203k loan limits depend on the Metropolitan Statistical Area or county where the property sits and the number of units on the property. Every year, HUD issues a Mortgagee Letter detailing new mortgage limits. The 2022 FHA maximum loan limits for Pasco County, Florida, include:

• Single Unit - $420,680
• Duplex (two units) - $538,650
• Triplex (three-unit) - $651,050
• Quadplex (four units) - $809,150

Loan-to-value (LTV) limits

For a purchase loan, the maximum LTV ratio that the FHA will guarantee on a 203k loan is 96.5%. For a refinance loan, the maximum LTV ratio is 97.75%.

For a purchase, you must pay a minimum down payment of 3.5% of the home value (as completed) or have at least 2.25% equity in your home for a refinance.

Down Payment Sources

As with other FHA loan programs, the minimum down payment for a purchase 203k loan is 3.5% of the total loan amount if you have a credit score of 580 and above. If you have a credit score lower than 580, the down payment requirement is 10%.

The FHA has several acceptable sources of down payment funds. These sources include cash and checking/savings accounts, investment funds, funds from selling real or personal property, gifts, employer assistance, and grants and loans.

Mattress funds or funds you stashed in your home are highly discouraged and can affect your chances of loan approval due to the lack of a paper trail.

Mortgage Insurance

For all FHA mortgages, the upfront mortgage insurance premium is 1/75% of the base loan amount (175 basis points). Lenders also pay an annual mortgage insurance premium to HUD (paid monthly).

Lenders will often pass these fees to the borrower at their discretion. The mortgage insurance premium rates will vary depending on the mortgage terms, loan amount, and LTV ratio.

Debt-to-income (DTI) ratio

The FHA requires private lenders to formulate two ratios to determine if they can meet the expected mortgage expenses. These include the front-end and back-end DTI ratios. The front-end DTI ratio measures your total housing expenses (rent, property taxes, insurance) against your monthly income.

Your front-end DTI ratio should not exceed 31%. The back-end DTI ratio measures your debt obligations (credit cards, student loans, mortgages) against your monthly income.

Your back-end DTI ratio should not exceed 43 percent. Lenders may accept DTI ratios exceeding 31% and 43% if you have significant compensatory factors.

Refinance

You can use the FHA 203k loan program to refinance and renovate an existing home. You can refinance the loan into a Section 203b mortgage once you have completed the rehabilitation projects.

With a refinance, your existing mortgage and closing costs are paid in full, and the remaining funds are allocated toward home improvements.

Origination Fee

A lender can finance part of the origination fee, which is borrower-paid, not exceeding $350 or 1.5% of the total origination fees.

The FHA 203k Loan Application Process in Pasco County, Florida

The FHA is not a lender but a mortgage insurer. The department does not issue the 203k loans. To obtain an FHA 203k loan, you must apply through an approved private lender such as a bank, credit union, or mortgage firm.

Below is an overview of the FHA 203k loan application process:

Find an FHA-approved lender

A lender specializing or has experience in FHA loans is an excellent place to start. FHA 203k loans can be more challenging to process and close than other mortgages. Once you decide on a suitable lender, you can request a loan proposal.

The lender will pre-qualify you and discuss the loan amount you can access. This information will aid you as you search for a home. The lender may provide documents that you will pass on to the contractor.

Find a Property and create a work write-up

Identify the property you want to purchase in Pasco County. Next, work with a certified contractor and draft a work write-up of the renovations you want to make.

This includes details of the improvements, estimated project cost, and breakdown of materials and labor. You will provide this information and the sales contract to your lender.

Submit your loan application

Submit your FHA 203K application, including the work write-up and personal and financial documentation. The lender will review these documents and your personal and financial information to determine your eligibility for the program. The lender will conduct a property appraisal to determine if the post-rehabilitation value aligns with the amount you seek.

You also hire a HUD-certified consultant (if applying for a standard loan) to conduct a property inspection at this stage. The consultant reviews the property to determine if it qualifies for the program and provides a cost estimate of the home improvements. Your lender will use the higher project estimate to determine your loan amount.

Application Approval and Closing

If you are eligible for the program and the HUD inspection and property appraisal don't raise any issues, your loan application will be approved, and your loan file will be submitted to underwriting. If everything checks out, the loan closes and funds.

The property seller receives their money, closing costs are paid, and the remaining funds are allotted towards the home improvements and placed in the escrow as mentioned above.

What Can You Use an FHA 203k Loan For?

You can use the proceeds from a mortgage rehabilitation loan to finance various home improvement projects. These improvements will depend on the type of FHA loan you seek and will significantly improve the quality of life in your new home in Pasco County.

The renovation and repair projects that you can finance with a standard 203k loan include:

• Structural additions – You may construct an Accessory Dwelling Unit (ADU) to increase the square footage in a single-unit home. An ADU is an additional living area separate from the primary residence. Only one ADU is allowed within the primary residence dwelling. This detachment that must provide a living, cooking, bathroom, and sleeping facilities can accommodate a growing family. You can also add a detached garage.

• Structural alterations – Changes that can include correcting foundation problems, completing a basement or attic, removing walls to create open floor plans, adding retaining walls, and increasing window sizes to let in more natural light.

• Major appliance upgrades or replacements – Repairing or adding a pool, replacing or reconditioning plumbing, and installing a septic system or well.

• Full kitchen and bathroom remodel – You can construct an additional bathroom to avoid sharing.

• Making energy efficiency upgrades and improvements – Updating HVAC systems and replacing windows and doors.

• Modernizing and improving the home's function – Updating electrical and plumbing systems.

• Cosmetic works - Include replacing flooring and carpeting, replacing kitchen/bathroom appliances and countertops, updating home fixtures, roof repair, painting, and replacing tubs/showers.

• Adding or replacing roofing, downspouts, and gutters.

• Major landscape work and site improvements.

• Enhancing accessibility for disabled persons.

• Removing health and safety hazards.

• Making changes that eliminate obsolescence and improve the appearance of the property.

One of the benefits of an FHA 203k loan is that it allows you to quickly increase your home's equity through the various improvements you can make. Since you can choose the specific renovations you want to make, you can invest in improvements that suit your lifestyle needs and preferences and improve the home's value in Pasco County, Florida.

For instance, one of the ways that you can improve a home's value is by improving its curb appeal. With an FHA 203k loan, you can complete major landscape work, make site improvements, repair siding, repaint, and add a detached garage. All these aspects significantly improve the home's curb appeal and, therefore, your home's value and equity.

What Happens After Property Renovation is Complete?

After completing your home rehabilitation project, the HUD consultant will conduct a final inspection to verify that the improvements were completed according to FHA standards. Your lender may also order another appraisal to confirm the value of the home post-renovation.

When your lender receives the final inspection documents, they will release the funds remaining in the escrow account. These funds pay contractor invoices, inspection fees, and other outstanding third-party fees. If any fund remains in the account, they will be applied to your mortgage balance, and the account will be closed.

Top Desserts in Pasco County, Florida

Like the rest of Florida, Pasco County has a robust and varied culinary scene with various great desserts. Below are some of the best desserts in the county where you and your family can enjoy a tasty treat:

Nothing Bundt Cakes

Located in Wesley Chapel and founded by Dena Tripp and Debbie Shwetz, Nothing Bundt Cakes is a bakery with home-kitchen roots and a modern touch. The highly-rated spot serves delicious cakes with carefully selected ingredients and the bakery's signature cream cheese frosting.

You can choose from up to ten unique Bundt flavors and over 60 handcrafted cake designs. You may order and customize the cakes for any occasion. The cakes are also crowned with the bakery's signature cream cheese frosting, and you can customize them for any occasion.

Twistee Treats - Dade City

Twistee Treats has a long history of serving excellent quality homemade ice cream. The ice-cream cone-shaped restaurant chain has been around since the 10980s. Twistee Treats is located in Dade City, the county seat of Pasco County.

Their wide selection of rich and smooth flavors includes shakes, cones, freezes, sundaes, and twirls. Twistee Treat also has a fun atmosphere, making it an excellent spot for kids.

Urban Sweets

You can find Urban Sweets in Wesley Chapel. This locally owned bakery serves some of the best desserts in Pasco County. Offerings you can enjoy at Urban Sweets include cakes, brownies, and cookies.

The bakery has also developed numerous cake parfait flavors to cater to every palate. Urban Sweets' baked goods use high-quality ingredients and are made from scratch.

Sorrento Sweets

Most visitors to Sorrento Sweets, situated in New Port Richey, have nothing but praise for the place. Sorrento Sweets is an authentic Italian bakery known by locals as Little Italy.

This highly-rated dine-in has a comprehensive menu including cakes and pastries (cannoli, red velvet, cheesecakes, croissants, and chocolate cakes), cookies and cannoli, espresso drinks, and lunch sandwiches.

Three Chip Confections

Three Chip Confections is located in Land O' Lakes, Pasco County. This small, locally owned dessert makes a wide range of unique fresh cookies and desserts. Their fast, free front door delivery service makes Three Chip Confection stand out among the locals.

The dessert ships top-quality cookies in a great packaging design. The products are shipped twice a week or more frequently upon request.