Learn which ones may be right for you
by Bob Melone, radius loan officer
Over the last few years, you’ve likely heard that mortgage lending guidelines have undergone some tightening. It may even seem like getting approved for a mortgage without flawless credit and less than 20% down is next to impossible, and that “creative financing” options went out of style in 2005 along with Jessica and Nick.
Honestly, nothing could be further from the truth. In the next few installments of our radius blog, I’ll be discussing the many creative mortgage options available, which allow for fixed rates, low down payments and flexible credit scores.
Today, I’d like to focus on the granddaddy of creative financing options: the Federal Housing Administration’s (FHA) 203(k) rehabilitation program. The FHA 203(k) rehab program allows buyers to finance almost any improvements they’d like when purchasing a home with as little as 3.5% down (based on the home’s purchase price and rehab amount). Meanwhile, renovation work can start right after the closing.
Before addressing specifics of the program, though, consider this scenario. If you’re currently in the market to purchase a new home or you’ve bought one before, you likely know it well:
You see a hot, new listing for a home that’s just hit the market. Looking at the pictures and description online, everything looks flawless: the size and style of the home, the bedroom count, the neighborhood… it’s all perfect! You’re sure it’s an ideal fit for you and your family. You promptly set up an appointment, the agent opens the front door and… UGH!! The linoleum in the kitchen is peeling and the lime green cabinets are straight out of a Brady Bunch episode. They’re so outdated even Alice wouldn’t want to use them!
You’re heartbroken. But once reality sets in, you know the house could, in fact, be perfect. That is, with a new kitchen, updates to the bathrooms, a roof that could use some repair, the removal of an old shag carpet that needs to be pulled up so the hardwood floors underneath can be refinished, and the possible addition of a deck off the back.
All those renovations and more are possible through FHA’s 203(k) rehab program, which allows for the following (and much more):
- Additions for increasing living area or a garage
- Finishing basements
- Satisfying Title 5 requirements
- Making any structural repairs
- Remediating health issues (i.e., mold)
- Updating kitchens and baths
- Completely replacing utilities (electrical, plumbing, etc.)
Single-family homes, condominiums and 2-4 unit homes are all eligible under the FHA 203(k) rehab program. You can even use it to renovate your current home! Meanwhile, our 203(k) program allows for flexible credit qualifying and credit scores as low as 640.
Maximum loan amounts, which are also quite generous, vary from county to county and the type of property you plan to buy. For example, the maximum loan amount for a single-family home in Norfolk County is $523,750, while the maximum loan limit for a four-family home in Norfolk County is over $1,000,000! To find the complete list of maximum FHA loan limits, follow this link.
Simply put, the FHA 203(k) program is a great way to turn today’s reality into tomorrow’s dream. So if you’re planning to buy a home that needs some work, or plan to do renovations on your current home, please feel free to call me with questions. I’m more than happy to answer them and would love to help.
Have a great day!