Your first home is one of the most significant investments you’ll ever make. As you explore all of your financing options, keep in mind one that presents clear benefits to first-time homebuyers: an FHA 203(k) renovation loan. This option lets you buy a home and fund renovations with the same loan.
Let’s go over three benefits to using this method compared to simply buying a home that is ready to move in. Then we’ll dive into the details of the FHA 203(k) program itself.
Expand your home search with an FHA 203(k)
You want to increase the number of homes in your search because that gives you a better chance of finding the right one for you. That’s true at any time, but especially so in today’s markets where competition for a shrinking number of homes continues to grow. An FHA 203(k) loan provides you with a workaround to this challenge by letting you consider houses that are not move-in ready.
Once you find a neighborhood you love, you can look for homes that require a little TLC. They might not attract much competition from other buyers, so the purchase process may be more straightforward. This approach allows you to focus on the neighborhood rather than the home, which you’ll upgrade to fit your needs.
Personalize your home with a renovation loan
Finding a home you like may be challenging, but getting the home you love might seem impossible. One of the benefits of an FHA 203(k) renovation loan is that it allows you to make not only repairs and fixes but significant structural changes that enable you to put your personal touch on a new home to make it one you’ll love.
With an FHA 203(k) renovation loan, you can make changes such as:
- Kitchen and bathroom remodels
- Carpet and flooring upgrades
- Roof replacements and some landscaping
Buying and renovating may save you money
There are two cost-saving aspects to buying a home with a renovation loan.
Firstly, a home that needs renovation work to be liveable will likely cost significantly less than a home that is ready to move right after closing. If you plan a renovation purchase ahead of time with your Real Estate Agent and Mortgage Loan Originator, you may end up with a finished home with a value far beyond what you paid.
In addition to this lowered cost to buy, an FHA 203(k) renovation loan can be combined with a purchase loan to provide you with a single set of closing costs. Closing costs typically range from 3% to 6% of a home’s purchase price, so being able to build the home you want while avoiding that extra financing cost could help your bottom line.
What is an FHA 203(k) renovation loan renovation loan
An FHA 203(k) loan, part of the larger Federal Housing Administration (FHA) mortgage program, is designed to offer home loans to borrowers who benefit from flexible credit and debt-to-income ratio requirements.
An FHA 203(k) loan offers competitive rates and pays for major or minor home repairs. When considering this loan program, keep in mind that it:
- Is only applicable to primary residences
- Focuses on repairs and fixes as opposed to “luxury” improvements
- Establishes an escrow account that holds the money for your contractor
There are two types of FHA 203(k) loans. The limited (formerly known as the streamline 203(k)) and the standard.
As the name suggests, the FHA 203(k) limited caps its funding at $35,000 and will help fund cosmetic changes. This can mean, for example, new carpeting, a fresh coat of paint or the purchase and installation of appliances. Think of these as repairs that you can do while living in the house.
While the FHA 203(k) standard loan funds major renovations or structural changes that cost at least $5,000. The cap varies depending on the community. With this loan option, you can replace, construct or demolish different parts of your home.
Choose the right renovation loan
Your first home should meet your style, neighborhood and budgetary goals. A great way to reach all three is with an FHA 203(k) program.
As a Mortgage Loan Originator in one of the nation’s top renovation lenders — CMG Home Loans has been named a top FHA 203(k) lender by HUD for the last four years — I understand how to deliver service that provides the personal touch your goals require.
Contact me today to start planning your first home purchase!