By Jeff Adolph
Residential Real Estate Finance
If you qualify for a Section 203(K) FHA mortgage, this basically means that a portion of your loan amount must be used to repair and modernize your property, and that not all of the money loaned is to be used to purchase the home. For example - if the property you were interested in purchasing cost $150,000 and you wished to renovate the property which will cost an additional $50,000, it may be possibly to borrow $200,000. However, there are terms and conditions that apply.
A Section 203(K) FHA mortgage loan is a special type of funding that stipulates that a minimum of $5,000.00 of the loaned amount must be used to fix up the property that the loan was acquired for. This means that home buyers are then able to avoid taking out another loan for building repairs to be made.
For a home-buyer to be eligible for a Section 203(K) loan, the property must fit within the following criteria:
1) A single-to-four-family dwelling must be purchased, and this dwelling has to be at least one year in age, and adhere to all zoning laws.
2) A property that represents more than a single-family dwelling that is a group of units for up to four families, must be attached, as in, all units must be joined, and must not be a part of a cooperative.
3) A home that has to be demolished, or razed, in order for rejuvenation of the property to take place, must retain some of the existing foundation.
4) A property that is being converted from a single-family home into a 2, 3, or 4 family residence, or vice versa.
Lending amounts depend on the property in question, however the general rule is that the home-buyer who qualifies for a Section 203(K) mortgage may borrow up to 110 percent of the property's expected market value at the time of work completion; or the purchase price of the property prior to rejuvenation, plus the cost of rejuvenation, whichever, is the lessor amount.
Should you decide that this is the mortgage for you then you need to contact a FHA approved lender, so that you can arrange your loan.
For more information on the Section 203(K) loan, please visit: FHA Programs
Sources: Taylor, Dr. Dan (2008) Section 203(K) Can Finance Home Fix-up; available online at http://www.bankrate.com
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