Are there contractor requirements for a 203k Loan?
Truly the only requirement is that your contractor must be licensed and cannot be you. You see, the 203k does not allow for “do it yourself” style work. But don’t worry this is good news! By not allowing for DIY improvements, the projects are more likely to be completed within definite period by a professional remodeler. This offers protection for the mortgage lender and for you. At the end of the day, the you are wanting to make improvements to increase your home’s value and enjoy it more fully. If the improvement projects aren’t completed or don’t meet industry standards, it will likely lead to more headache and could even lower your home’s value.
There are so many options out there for calculating your mortgage payment with plugging in just a few figures; the loan amount, interest rate, and the life of the loan.
When it comes to mortgages from a renovation loan, like the FHA 203k Loan, the concept is the same but how we achieve the loan amount is a bit different. Typically, the loan amount is calculated by subtracting the down payment from the purchase price but when calculating the loan amount for a 203k Loan we must factor in the renovation costs. Below we’ve included an equation to provide a general calculation of a 203k loan amount, as well as, a list of average home renovation costs when considering estimations for your renovation budget.
The short answer to the question, “What does the FHA have to do with Renovation Loans?” is, “everything”. If the Federal Housing Administration or FHA was a tree, the 203k Loan would be one of its branches. Simply put, the FHA is a mortgage insurer. The administration was created amidst the high number of foreclosures and defaults during the Great Depression. They served to encourage banks through incentives to give home loans to low-medium income families, first time homebuyers or those with a low credit score. The result was a stimulated economy and more American homeowners. Today we see the FHA loan products acting in the same way; many first-time homebuyers find themselves interested in the FHA loan because of the low down payment requirement as well as the reasons just mentioned.
Many of today’s homeowners are familiar with the home equity line of credit (HELOC) which is offered by many banks as an option for financing home improvements. What some homeowners do not know is that there is a more efficient way to finance your home improvements; the FHA (Federal Housing Administration) and their 203k loan program.
Many people we speak with are apprehensive to list their homes because houses are flying off the market and they are afraid they won’t be able to find something that they want to buy. So, if you find yourself ready to upgrade to a larger home or one with more amenities, consider upgrading your current home to include those features you are looking for, instead of buying a new house. This will save you the hours of house hunting, the frustration of packing, and allow you to increase the value of your current home.
Rehabilitation is defined as the action of restoring something that has been damaged to its former condition. It is fitting that the FHA (Federal Housing Administration) 203k Loan is also referred to as a 203k rehab loan because, as the name suggests, you are able, through your home financing, to restore a home to its former condition.
For many when buying a home, their primary concern other than finding a home is financing for their home. If the homeowner is considering renovations prior to owning the house then they would find themselves concerned with not just financing of the home itself but the renovation project as well. That is where the FHA 203k Loan comes into play, this program allows homebuyers to roll the purchase price of the home and the cost of the renovations into one loan, one closing and one monthly payment. Let’s look at what the 203k loan requirements are and how to get approved.
If we view the process of getting to the closing of your 203k loan as a journey, this one, which will take approximately 45 days, starts with an application. You’ll complete your loan application with the needed information, name, purchase property address, social security number, etc. as well as needed documentation (you can find a list of required loan documents here). From there, your application and all the documentation gets sent through the mortgage company’s internal parties; they are getting your credit score and verifying the information.
Was your home purchased from a catalog? The story of the Craftsman Bungalow. Catalogs. Will our kids even know what those are? If catalogs are becoming a thing of the past, I’d say that we can say with confidence that ordering a home from a catalog is certainly something from a period we will refer to as “yesteryear”. So, while our kids may never understand the excitement of looking through the toy catalog that was released annually at the end of November, they will likely, at some point know what a Craftsman bungalow looks like.
