(Mar 30, 2023)
Read on to learn more about the FHA 203K loan, how you can qualify for it, the process involved, and how to use it to improve your home's value.
What is an FHA 203K Loan?
An FHA 203K mortgage loan is offered by Federal Housing Administration (FHA) through different approved lenders and backed by the government.
Unlike the conventional and VA mortgages, this is essentially a single mortgage loan that finances the home and repairs (including the cost of labor and materials). The loan enables low- to mid-income buyers to purchase and rehabilitate their primary residences.
How Does FHA 203k Loan Work?
The FHA-insured loans are given out through different lenders approved by the U.S. Department of Housing and Urban Development (HUD). Because they are government-backed, the FHA 203K loans are almost always accessible to everyone who meets the requirements.
They, however, may attract higher interest, especially if the home requires significant repairs. Also, it may come with higher appraisal fees because they involve so much paperwork and coordination.
Borrowers can take out a 15-year or a 30-year FHA 203K loan at either a fixed rate or adjustable rate from any FHA-approved lender. The total amount of loan given will include the cost of the home and the cost of repairs.
The amount given towards renovations will depend on the type of FHA 203K loan you've chosen and is not given to the home buyer directly but disbursed to the contractor once the work is completed. The renovations are expected to be completed in no more than six months and must follow the guidelines.
Types of FHA 203K loans
There are two types of FHA 203K loans- limited and standard. A Standard FHA 203K loan is given when a lender needs major structural repairs or renovations that exceed $35,000, like adding a new garage, expanding the kitchen, or correcting foundational issues.
Requirements include a $5000 minimum cost in repairs, a certified contractor, and a HUD-certified consultant to ensure that all property standards are met and that the projection is completed within the timeline and guidelines agreed upon.
A Limited or streamlined FHA 203K loan covers non-structural repairs or cosmetic works that are not more than $35,000. These include repairing flooring and roofing, painting, replacing kitchen and bathroom countertops, replacing tubs and showers, and so forth.
Unlike a standard 203K loan, there is no minimum repair cost and no need for a HUD consultant. The borrower provides a completed work plan demonstrating the contractor's bid.
FHA 203(k) Loan Requirements in Union County, Florida
The requirements for the FHA 203K are more or less similar to the standard FHA loan. For both, you'll need to work with an FHA-approved lender in Union County. Below are your requirements to be eligible for the FHA 203K loan.
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Income requirements - There is no income limit. Borrowers of all income ranges are welcome to apply.
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Credit score - Lenders require you to have attained a credit score of at least 580. However, depending on the other requirements, lenders can allow up to a minimum credit score of 500.
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Down payment - You'll need to make a down payment of at least 3.5% and have an LTV of 96.5% if your credit score is 580 or more. For a credit score lower than 580, you must make a 10% down payment.
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Debt-to-income ratio - You'll need a DTI of less than 43% of your income. This percentage includes monthly mortgage repayments for the house you intend to purchase.
- Property purpose - The property to be funded must be used for a primary residence. The property can be a single-family home or a 1 to 4-unit property. The loan will only cover interior repairs for a townhome or condo.
Once you've qualified, you will have to abide by the following guidelines:
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Permits must be issued within 30 days of loan closing.
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No holdbacks are applicable on draws for limited loans, and 10% is applicable on all draws except the last draw for standard loans.
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Only two draws are applicable per contractor- 1 initial and 1 final for a limited loan, and up to 5 draws are allowed per contractor for a standard loan.
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Work must begin within 30 days of loan closing, can only cease for not more than 30 days, and must be completed within 6 months of loan closing.
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50% deposit can be disbursed to the contractor at the beginning of the project but only if requested in writing before loan closing.
- All repairs must be done by a certified contractor and spearheaded by an HDU professional.
From the above list, it's clear that the most significant advantage of the FHA 203K loan is that the qualification requirements are less stringent compared to other mortgage plans and are accommodative to people in the low-income range.
FHA 203k Loan - Step by Step Process
Here are the steps you will go through when purchasing a home using the FHA 203K loan plan. As mentioned, it is similar to applying for an FHA loan, except in this case, you must submit the contractor's bid for renovations to be funded.
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Find several lenders approved by the FHA to give 203k home renovations loans and request mortgage quotes.
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Apply for the FHA 203K loan to be pre-qualified. The lender will offer you different sale and renovation amounts.
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Find a contractor.
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Meet the contractor to discuss the scope of work needed to be done on the house. The contractor should then draw a detailed cost estimate for every renovation item, including labor costs.
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If the renovation costs exceed $35k, find an FHA 203k-certified consultant.
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Submit the contractor bid to the lender and wait for the appraisal.
- Once appraised, the lender can close the loan, pay the sellers, and the contractor can begin his work. The contractor's amount is escrowed until work is completed.
After the renovation, you can move to your dream home, which is now valued more than the initial cost before the renovations.
How To Use the FHA 203k to Improve Your Home's Curb Appeal in Union County, Florida?
If your home doesn't look refreshing or appealing, you can take out an FHA 203K loan to make it look a lot nicer and improve its value instead of moving houses.
Also, you can use a 203K loan to rehabilitate a fixer-upper and customize it to your liking instead of buying an already renovated house from an owner selling it at a premium cost.
Here are a few ways to use the FHA 203k to improve your home's curb appeal.
Expand the Windows
In addition to boosting the home's curb appeal, big windows let in more natural light and fresh air, provide passive solar heat when well-positioned, and give the illusion of big spaces. With the FHA 203K loan, you can replace existing windows with more stylish types and even add shutters.
Repair the Walkway and Driveway
The driveway and the walkway are the first entry points into your home; you need them to look as great as possible. Repairing rundown, cracked, or broken paths will quickly transform your home's street view. Play around with different textures and use long-lasting materials like concrete that will last you for years before needing another repair.
Update Siding
The siding can make your home's exterior look old or deteriorated. To change the look, strip down that old aluminum siding and update it with more modern and stylish ones. Choose a material, texture, and color with a soft yet sharp look.
Repaint the Home
Repainting works like a charm every time. It completely transforms the exterior of a home, making it look new. Take this opportunity to play around with colors.
Expand and Refinish Your Porch
A simple updo to a porch can increase the appeal of your outdoor space, making a big impression on everyone who walks up to your house. If you find the porch smaller, add a few footages, strip off the old paint layers, and add a new layer, stain, or pain. You could also switch to stylish ceramic tiles.
Level Up the Lighting
Upping the outdoor lighting instantly makes the spaces feel and look warmer and inviting. Add solar-powered lighting around your landscaped areas, string lights around the patio or porch, or place bigger lanterns on the front stoop sconces. Hanging lights are also a welcomed option.
Install Hardscaping Features
Hardscape features boost the general landscape of a home and help define spaces. Features like retaining walls, driveways, walkways, patios, and decks are all covered by the FHA 203K loan. You, however, cannot use the loan to construct a tennis court, fountain, barbeque pit, or other features deemed luxurious.
Curb appeal renovations improve the home's value and create a lasting impression on everyone who walks into your home.
Improving Your Home's Value Through Renovation in Union County, Florida
You can do much with an FHA 203K loan, from upgrades to renovations, repairs, and remodels. All these are meant to improve the livability of your home as well as its aesthetics and value. There are two ways to use the FHA 203K loan. One is to increase the value of your current home through the refinancing option, and two is to increase the value of a home you intend to buy. A home's value can be either in terms of money or the home's suitability.
Instead of buying the insanely priced renovated homes, you can find a good structure and, using an FHA 203K loan, renovate, remodel and upgrade it to your liking. You can also use an FHA 203K loan to breathe new life into your current home instead of moving by refinancing your existing mortgage. For instance, you can add the square footage to expand the house to accommodate your growing family or add a new bathroom so you don't have to share with your teenage kids.
As for monetary value, renovating a home before selling it increases its resale value by up to 56 cents for every dollar spent. However, this depends on the part of the house that's renovated. Bathrooms, kitchens, garage doors, and windows have been proven to pay back much more. Remember, though, that it's not uncommon not to get any payback after remodeling a home. The trick to getting a return on investment is knowing what critical aspects of the home buyers are keen on.
Consider these renovations when taking an FHA 203K loan to increase the home's value:
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Boost your home's curb appeal, as shown in the earlier chapter.
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Add a livable square footage.
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Add a new bathroom.
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Add a new pool or repair the current swimming pool.
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Replace the current sink with a double-sink bathroom vanity.
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Give the kitchen an overhaul - Install a kitchen island and pantry, add double sinks, replace the countertops with modern ones and add lots of storage options.
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Find a space for a home office. You can either build or convert.
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Expand windows to bring in more natural lighting.
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Add an ADU (Accessory Dwelling Unit) in your backyard.
- Create an entertaining, relaxing, yet functional outdoor space like building a deck or an outdoor kitchen.
You cannot possibly do everything on the list, and keeping pace with what buyers would like is impossible. The best thing is to talk to a real estate agent when the time comes to help you decide on areas to focus your efforts.
5 Favorite Desserts in Union County, Florida
It is no secret that dessert is one of the best parts of any meal, and nothing beats a tasty dessert when you crave something sweet. Luckily, Union County offers you a variety of desserts to help satisfy your sweet tooth. Whenever you feel the need for a sugar boost, be sure to check out the following favorite dessert spots.
Banana Pudding
Banana pudding is a delicious classic, and creamy dessert served in many Florida restaurants. This classic dessert consists of alternate layers of bananas, rich vanilla pudding, cookies, and wafers topped with whipped cream. Nothing beats the banana pudding, and it is a must-try in Union County. Check out the Blessed Hands Catering and More LLC to taste this heavenly treat.
Key Lime Pie
Undoubtedly, the first thought that comes to mind when you think of Florida desserts is a slice of the refreshing key lime pie. This deliciously creamy and tart dessert is a staple on most Sunshine State menus. If you are in Union County, make it down to Uppercrust for the best key lime pie ever.
Ice Cream
Ice cream is one of the most popular desserts in Union County, and you won’t miss the popping ice cream parlors around the county to satisfy your sweet tooth. While some ice cream shops serve soft-serve classic flavors such as strawberry, vanilla, and chocolate, others offer more creative combinations. One thing is for sure, you won’t miss your favorite flavor, and you can get your preferred ice cream treat at the 21 on Main Frozen Yogurt, Co.
Cake
When the sweet tooth strikes, treat yourself to a warm slice of a moist cake right out of the oven. There are different flavor options to choose from, and you can either go for one with cream, frosting, or icing. Sweeten it up by serving it with ice cream or fruits, and if you’re looking for a rich and sweet cake, check out Sugar Dessert Shoppe and try something new.
Donuts
It's no surprise that donuts have become a popular breakfast food and the perfect treat when you're in the mood for something sweet. The donut is versatile, with different flavors and toppings, and a freshly baked one hits the spot. Union County offers you a wide variety of excellent bakeries and donut shops, and the Posh Pastry is one of the best spots for a donut treat.
Conclusion
The FHA 203K loan has significantly impacted the real estate market in Union County, Florida. It has increased the number of homeowners in the county to more than 80%. This is because the loan is easily accessible even to low-income earners and has a reasonably affordable rate. The eligibility requirements are a little less stringent because of the government backing.
Unlike other mortgages, county residents can take this single loan to purchase a home and renovate it to their liking. They can also use the loan to improve the home's value by remodeling, upgrading, repairing, and renovating their current home.
(Mar 30, 2023)
