Well, the reality of buying a property in disrepair and fixing it up is far different from what you see on TV. You might be able to afford the purchase price, but not the repairs. Or maybe your lender won’t approve a loan for the purchase because the house needs so much work.
One option to make your dream home a true reality is a Federal Housing Administration 203k loan. A 203k loan allows you to borrow the funds for your renovation costs as part of your mortgage—one loan, one closing. The amount you borrow is the sum of the home’s price and the estimated price of the repairs. You can use a 203k loan whether you want to take a place down to the studs or just update the bathrooms.
Choose your flavor.
There are two types of 203k loans. The streamlined 203k works for less extensive repairs and improvements and permits you to finance up to $35,000 more than the purchase price. If $35,000 won’t cut it, the standard 203k lets you tackle bigger projects—even those that may prohibit you from living in the home during construction.
Keep in mind that neither program will cover improvements that the FHA considers a luxury, such as building a pool. With both loans, you must start the repairs within 30 days of the closing and complete them within six months.
What types of houses qualify?
Most residential homes that have been standing for at least a year qualify. Some teardowns and multifamily properties meet the requirements, too.
Are 203k loans a good deal?
There are pros and cons. As with all FHA loans, you’ll have to pay private mortgage insurance for a substantial portion of the loan. And because of the estimates needed for repairs, a 203k loan will require some additional paperwork. Of course, 203k loans give you a chance to buy (and repair) a home that you otherwise could not afford.