Make Your Current Home Your Dream Home
Imagine buying your first home and watching your family outgrow it. You've made a lot of memories here and the thought of leaving makes you sad. Could there be a way for you to stay?
There is and it's called the FHA 203(k) home improvement loan. With this loan you can refinance your current mortgage and get the extra funds you need to pay for repairs, upgrades and renovations all in one home loan. You can add bedrooms or bathrooms, expand a kitchen or dining room or even add a second story to the home.
The FHA 203(k) covers home improvement projects from simple repairs to structural upgrades. You can literally “pop a top” on your ranch house and double your square footage if an appraiser can find similar homes – called comparables – in the area. Adding onto a home means you can increase your area much cheaper than if you were to sell the home and buy new, or build a home from scratch.
Two options
The 203(k) loan is insured by the Federal Housing Administration (FHA) and offers two options: Limited and Standard. Finding the one that is right for you depends on how much you want to spend and what you intend to do.
The Limited 203(k) is an all-in-one loan used for homes that need minor repairs. It allows you to refinance your home and make improvements or upgrades up to $35,000. There are no minimum repair costs and you must occupy the property.
You can use the Standard 203(k) when the home improvements exceed $35,000 or when you need to make structural repairs. There must be a minimum of $5,000 worth of repairs and you must occupy the property. Since you are refinancing your current mortgage, a portion of the loan proceeds are used to pay off your existing mortgage. The remaining funds are placed in an escrow account and released as your projects are completed.
The Standard 203(k) requires a HUD-approved 203(k) consultant to help in the process. But no need to worry. The consultant will be a valuable resource for you as they will work directly with your contractor and lender to ensure the required work is completed. (Your loan officer can work with you to obtain the services of an experienced consultant). You may also include up to six months of mortgage payments into the loan if the HUD consultant determines you need to be displaced from the home during the repairs, as may be the case during a major renovation.
You can make the following repairs and renovations to your home with the Standard 203(k):
Structural alterations and reconstruction:
- Room additions
- Repair of termite damage (sill plate replacement)
- Major remodeling of kitchens and bathrooms
- Finish an attic or basement
- Add a second story to a home
Major landscaping and site improvement:
- Correction of grading
- Drainage problems
- Tree removal (health and safety hazard)
- Repair of sidewalks (health and safety hazard)
- Driveway repair (health and safety hazard)
As a current homeowner, it might seem like a hassle to refinance your current mortgage. However, a refinance can often work in your favor, especially if you purchased your home with a higher interest rate. With the 203(k) loan, you're getting the extra funds it takes to renovate your home to fit your needs and your lifestyle. You're creating a home with room to grow and a place where you can continue making memories for many years to come.
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