A reader asks, “We are looking to purchase a HUD house that needs a lot of work– sewer system, plumbing, ceilings repaired. The electrical seems to be ok. Would an FHA 203b loan be available in addition to the traditional FHA loan? If the 203b is available, how does it work in terms of repayment?”
The FHA/HUD official site says this about the FHA 203b loan:
“What is the purpose of this program?
To provide mortgage insurance for a person to purchase or refinance a principal residence. The mortgage loan is funded by a lending institution, such as a mortgage company, bank, savings and loan association and the mortgage is insured by HUD.
What are the eligibility requirements?
- The borrower must meet standard FHA credit qualifications.
- The borrower is eligible for approximately 96.5% financing. The borrower is able to finance the upfront mortgage insurance premium into the mortgage. The borrower will also be responsible for paying an annual premium.
- Eligible properties are one-to-four unit structures.
- To learn more about the mortgage limits in your area, go here.”
In short, the FHA 203b loan is the basic FHA home loan or refinance loan offered to qualified borrowers. The reader may be thinking of another loan program called the FHA 203k Rehab loan. Of the 203k FHA Rehab loan, the FHA/HUD official site has this to say:
“Section 203(k) fills a unique and important need for homebuyers. When buying a house that needs repair or modernization, homebuyers usually have to follow a complicated and costly process. The interim acquisition and improvement loans often have relatively high interest rates, short repayment terms and a balloon payment.”
“However, Section 203(k) offers a solution that helps both borrowers and lenders, insuring a single, long term, fixed or adjustable rate loan that covers both the acquisition and rehabilitation of a property. Section 203(k) insured loans save borrowers time and money. They also protect the lender by allowing them to have the loan insured even before the condition and value of the property may offer adequate security.”
The FHA 203k rehab loan may be what’s needed in the situation described in the reader question–speak to a loan officer to learn what options might be open to you under this program. Loan repayment terms are similar to other FHA loan programs though the 203k loan may have some unique circumstances that could affect when you begin paying on the mortgage loan depending on circumstances. Speak to a loan officer to learn more.
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