So we’ve discussed conventional and FHA mortgages, but an important type of FHA mortgage is the FHA 203k mortgage. The FHA 203k mortgage was created to help people buy houses which need repairs. Prior to the 203k loans, lenders were becoming increasingly strict when it came to lending on a house which needed work. But with the advent of this new FHA backed loan, it became possible to borrow money for an unfinished house or a house that needs serious work done.
These loans are great for first time home buyers looking to purchase a “fixer upper,” because you can mortgage the current value of the house plus the cost of repairs. So, if you were looking at a house worth $100,000 which needed $50,000 worth of repairs, you could mortgage the full $150,000 less a small down payment, akin to the traditional FHA down payment. You will need an appraisal of the house as it currently is, an appraisal of the house after the work is done, and a detailed plan of the work to be done.
With these loans, many home buyers can buy a beautiful house at a fraction of the cost. And because you are required to see an appraisal of what the house is worth after the work is done, you know you are not overextending yourself or borrowing more than the house will be worth.
If you are looking at a house which needs some work done to it, and would like some advice on how to proceed, please contact me and I will walk you through the FHA 203k process. And if you have any general questions about how 203k mortgages work, please leave a comment.