For homebuyers looking to renovate their properties, a 203k Rehab loan can be a great option. A 203k Rehab loan is a traditional FHA mortgage and a rehab loan rolled into one. It allows you to have work done on a property and roll the cost into the purchase price at the same time.
In today’s market, opportunities abound in both traditional and foreclosure/short sales.
In the case of foreclosures and short sales, you may find properties in your target neighborhood in need of repair. These may unable to be financed by traditional means and this gives you leverage at the negotiating table.
For you to be able to purchase a home using a 203k mortgage, three things need to happen.
First, you need to be prequalified by your lender, as you normally would.
Second, once you find a property that is in need of repair, you will need cost estimates. Note that all work needs to be overseen by licensed general contractors who have their own lines of credit and references.
Third, a special 203k appraisal is done to determine the value of the property after the work is complete. If you are still prepared to buy, you go to the closing table as you would with a traditional mortgage. Escrow accounts, based on the initial estimates, are set up and the required work begins.
You could have exactly the home you want and save on renovation expenses. Your mortgage professional will have all the information on how this great program works.