Read on to learn more about FHA 203k loans in Putnam County, including the loan requirements and how to qualify for one.
What Are FHA 203k Loans?
An FHA 203k loan is a form of home refinancing or financing that allows homeowners and potential homebuyers to combine the property cost and incurred renovation expenses into one mortgage. In effect, it enables individuals who want to buy a fixer-upper that needs multiple repairs and renovations to roll the cost of the home and these projects into a single home loan.
Current homeowners can also opt for an FHA 203k loan to refinance their home and fund the cost of upcoming renovations through one home loan. If you find that the house you want to buy or refinance may need significant enhancements and repairs, an FHA 203k loan could be a perfect choice.
How FHA 203k Loans Work
Also known as rehab loans or FHA Construction loans, FHA 203k loans are backed by the Federal Housing Administration. These funds can take the form of 15- or 30-year fixed-rate loans or adjustable rate mortgages (ARM) and can be applied to costs associated with both labor and materials.
Since the government insures these loans, they come with more flexible requirements and qualification terms than conventional home loans. The costs associated with repairs and home improvement efforts are included in the total amount you choose to borrow. You can repay the loan for years while you pay off the monthly premiums linked with your mortgage.
FHA 203k loans can give you a cost-effective way of paying for many home repairs and improvements (extensive home renovations). As with any loan, you'll need to qualify to obtain a rehab loan based on your credit history, debt-to-income ratio, income, and other factors.
Keep in mind that home improvements done under FHA 203k loans must begin within 30 days after closing and take a maximum of 6 months to be completed.
Types of FHA 203k Loans
There are generally two types of rehab loans. The first is the Standard 203k loan, used for homes requiring significant structural repairs or remodeling. The second is the FHA 203k limited loan, commonly used for cosmetic repairs or new roofing and appliances.
The FHA 203k Limited Loan
The FHA 203k Limited loan is the best option when handling minor repairs and is limited to $35,000. These loans are available as fixed- and adjustable-rate loans and come in various terms.
Here are some of the eligible repairs you can make with FHA 203k Limited loans:
- Repairing or replacing flooring
- Indoor or outdoor painting
- Replacing appliances
- Abatement of lead-based paint
- Waterproofing or finishing a basement
- Accessibility upgrades
- Repairing or replacing decks
- Repairing or replacing the roof
You cannot use this loan for new construction, structural repairs, or remodeling that needs relocating a load-bearing wall.
Here are some other details about FHA 203k Limited loans you'll want to note:
You must live in the house during renovations and occupy the house within 60 days of closing on the mortgage loan.
There are no inspections needed once the repairs are done as long as the charges are $15,000 or less.
- These loans come with less paperwork than Standard 203k loans.
With an FHA 203k Limited loan, you can't convert a single-family property into a multi-unit home, decrease the number of units in the property or do foundation work. For any significant renovation work, the FHA 203k Standard loan instead.
The FHA 203k Standard Loan
FHA 203k Standard loans allow for more significant cash and major home improvements. However, the application process is more complex than FHA 203k Limited loans and requires you to work with a HUD-approved consultant.
While the minimum amount for FHA 203k Standard loans is $5,000, you can receive up to 110% of your property's after-repair value so long as it's below Putnam County's HUD limits. Like FHA 203k Limited loans, Standard loans come in both fixed- and adjustable-rate choices.
Some of the home renovations you can cover with FHA 203k Standard loans include:
- Sewage and septic improvements
- Roofing alterations
- Storm shelter additions
- Appliance and HVAC upgrades
- Site relocation
- Structural changes
- Site conversion
- Accessibility upgrades
- Extensive landscaping and site improvements
You also can finance up to six months of your property's mortgage payments if you need to stay off-site during the home renovations.
Here are other FHA 203k Standard loan details to keep in mind:
You'll need to set aside a "contingency reserve" that amounts to anywhere between 10% to 20% of your total home improvement estimates. This will act as a buffer if the project changes over time or the estimates are incorrect.
You'll need to have the home inspected after the repairs are completed.
- You must hire a HUD-approved consultant.
Note that home improvements considered extravagant, such as adding a new swimming pool, aren't covered under FHA 203k Standard loans.
FHA 203k Loan Requirements in Putnam County, Florida
Homeowners or homebuyers must meet specific minimum requirements to qualify for an FHA 203k loan. These requirements are similar to standard FHA loan requirements.
Credit Score Requirements
Credit scores always play a significant role when applying for a loan. The Federal Housing Administration allows scores as low as 580 for one to qualify for an FHA 203k loan.
However, some lenders might need a score of between 620 to 640 to qualify for financial support. Still, this is much better than the 720 you'd possibly need for conventional loans.
Minimum Down Payment
The minimum down payment is typically the cash contribution you must provide when buying a home. Like other FHA loans, the 203k loan requires a low down payment. With a 3.5% down payment, you can get a rehab loan based on the buying price and the gross home renovation cost.
For instance, a $200,000 home with $30,000 in repairs would only need a down payment of $8,050. Keep in mind that closing costs are also included in the down payment. The closing costs of 203k loans usually lie between 3%-6% of the purchase price.
If you have a FICO score of between 500 to 579, you may receive help through state home buyer programs. Gifts from family and friends or approved non-profit organizations are also allowed.
FHA 203k Loan Limit
Using FHA 203k loans, you can take up to 110% of your house's proposed future value or the property's buying price plus renovation costs. It's important to note that your total loan amount shouldn't exceed your area's FHA loan limits.
Income and Debt Requirements
Your lender will also examine your debt-to-income ratio. Your debt-to-income ratio typically compares the money you owe monthly to what you earn. Specifically, this is the percentage of your total monthly income (before tax deductions) that goes towards paying rent, credit cards, mortgage, or other debts.
Less than 43% of your monthly income should pay off your proposed mortgage payments and other debt. For instance, if your income is $3,000 per month, your future home payments, credit card bills, and other loan payments shouldn't exceed $1,290 per month.
All FHA mortgage loans, 203k loans included, are available to eligible U.S. citizens. Your lender must verify your citizenship status during the loan application process. You can also apply for rehab loans if you're a lawful permanent resident.
Before settling for FHA 203k mortgage loans, you must make sure you plan to reside in the home you're buying. If you only plan to do home renovations and repairs and then sell or rent the house, an FHA 203k loan isn't for you.
The Process of Applying for FHA 203k Loans in Putnam County, Florida
FHA 203k loans enable would-be property owners who don't have a lot of money to buy a home in need of repairs. These loans are backed by the government and finance both the purchase and renovations of a house.
FHA 203k loans are intended to support owner-occupancy among lower-income households, enabling them to improve older homes as their primary residences. For eligible individuals, a rehab loan is often the only way of financing a home needing significant repairs.
Outlined below is the process of applying for a 203k loan in Putnam County, Florida.
- Choose a 203k-approved bank or lender
- Get approved for the mortgage
- Choose a professional contractor
- Get bids (estimates for the home improvements)
- Close the loan
- Complete repairs and move in
Choose Your Projects
Your first step is to decide which home modernizations or improvements you want to make. Your lender will need you first to address any health or safety hazards - repairs like missing handrails, broken windows, mold, and derelict roofing.
From there, choose specific cosmetic improvements you want to handle. For instance, say you want to gut the bathroom, or maybe you want to replace appliances in your kitchen. All these are qualifying projects for rehab loans.
Choose Your Contractor
After getting your project list together, it's time to find contractors. Remember, your contractors must be certified, insured, and in full-time business. It's not wise to use your friends who do construction on the side or do the work yourself unless you're a professional contractor.
The best results will always come from experienced remodeling firms that have worked on at least one 203k renovation project in the past.
Get Your Bids
Once your licensed contractor is on board with assisting you with your home improvement plan, get official bids. Make sure these bids are entirely accurate.
This is because your lender will submit final bids to an appraiser, who'll build the value of the renovations into the future value of your home, upon which the loan is based.
Changing bid amounts later could incur additional costs and trigger pre-approval with your lender.
Close the Loan
Your lender will have your asset, income, and credit report details by this point. Once they have all the necessary bid paperwork, your mortgage can go to final approval. You'll sign the final loan documents, and the home is officially yours.
Once the loan is finalized, your contractor can start the home renovations. Depending on the extent of the job, you'll be able to move in immediately. For more significant home improvement projects, arrange to live elsewhere until the task is complete.
Benefits of FHA 203k Loans
Prospective homebuyers sometimes shy away from houses that need renovation because they can't come up with the money for new flooring or roof in addition to closing costs, a down payment, and moving expenses. A loan that combines all these expenses enables you to extend renovation expenses over the life of your mortgage instead of paying a lump sum.
Borrowers can also deduct the interest they pay on their entire mortgage on their income taxes, even the portion they use for renovations. Before the housing bubble burst, homeowners who needed to renovate their houses could easily take out home equity loans to pay for their projects.
Today, most lenders are unlikely to approve home equity loans. In fact, without an excellent credit score or significant home equity, you're less likely to qualify for a second mortgage.
Top 5 Desserts in Putnam County, Florida
If you're in the mood for iced treats in Putnam County, you'll find fantastic dessert takeout counters and cream shops on your drive through town. Putnam is a grand county that offers fantastic restaurants, shopping centers, and amazing frozen desserts.
Below are 5 of the best desserts in Putnam County.
Farm-fresh Frozen Dairy Treats from Hoot Owl Farm House
This first-rate local dessert shop boasts farm-fresh frozen dairy treats in different mouthwatering flavors. All treats are created with top-quality, natural ingredients and come in giant, generous scoops of sorbet, gelato, or iced cream. This dessert shop offers drive-through services, making ordering your favorite iced treat easy for the road.
Island Cafe's Espresso-topped Desserts
Island Cafe is a fantastic local dessert cafe with coffee drinks and toothsome handcrafted iced treats. You'll find over 30 delicious flavors and a wide selection of milkshakes. It's the perfect place to stop by on your way home from a tiresome day's drive with your family.
Bruster's Real Iced Cream
If you're craving freshly made frozen desserts, you can't afford to miss tasting what Bruster's has to offer. This local counter-service shop is situated in the Shoppes of Northtown and has a great selection of frozen treats, including milkshakes, waffle cones, sundaes, and custom cakes. You can also order a pint of your favorite iced dessert and take it home for the family.
This frozen dessert shop is situated near St. Augustine, Florida, and features a terrific selection of cone sizes, flavors, and condiments to customize your treat.
Although Captain Cone is a small, counter-service dessert bar, it's considered a local gem with top-quality desserts for the entire family. It offers takeout and delivery services and boasts generous portions at a pocket-friendly price.
Dink's Place Fruit Dessert
You'll love this local dessert shop if you enjoy a refreshing cup of frozen yogurt. This retro-styled cafe has a wide selection of flavors and delicious fruit toppings to customize your treat.
Should You Consider an FHA 203k Loan?
Obtaining an FHA 203k loan may seem complicated, but it might be your best alternative if you lack enough home equity or your cash reserves are low. Just remember to shop around for lenders with plenty of 203k experience to avoid complications with the loan.
You also want to ensure the contractor you choose has 203k loan experience so they know what the program may need in terms of inspections and proof that the work has been completed. With FHA 203k loans, you can find yourself with the home of your dreams and a monthly loan payment you can afford.