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203(k) Loan Pros and Cons

modern kitchen with plants

 

With an FHA 203(k) renovation loan, you can buy a house and get the funds to fix it up, all with one loan. For example, you can pay for a new kitchen, add a bathroom, repair a roof or fix a driveway. Need new carpet or hardwood flooring? Done. All of these projects - and others - are eligible for 203(k) financing when you buy a house. 

 

You can also pay for this work if you already own your home by refinancing your current mortgage. By converting your current home loan into a 203(k) loan, you can pay for renovations to add value to your house, even if you don't have much equity built up in it. 

 

With a 203(k) loan, you can finance almost any remodeling dream project, whether you're a first-time homebuyer or a seasoned homeowner. As with any major financial investment, however, it's to your advantage to know the pros and cons of this loan type before you sign on the dotted line.

 

Pros

  • Low down payment option (3.5%)
  • Easier requirements for income and credit score
  • Seller can contribute up to 6% of purchase price
  • Claim a larger tax deduction (renovation and home purchase interest combined)
  • Avoid plowing through your savings or maxing out credit cards to cover work
  • Lower closing costs
  • One mortgage, one closing, one payment

Cons

  • Only eligible for primary residences
  • Mortgage Insurance Premium (MIP) required (can be rolled into loan)
  • Do it yourself work not allowed*
  • More paperwork involved as compared to other loan options

The 203(k) is one of the top options for homebuyers who want to hire a professional to do the work. If you're the DIY-type, or you want to have your cousin do the work "because he's handy," you might need to find another way to pay for the materials and labor. The key is to find an expert 203(k) lender who understands the process and can get your mortgage closed in a timely manner.** This lender should also work well with a specialized team - like a real estate agent and HUD consultant.

 

If you'd like to know more about the 203(k) loan, click the button below for more information.

 

Ultimate Guide to Renovation Loans

 

 

**Amerifirst was ranked as one of the top FHA 203(k) providers in 2019 by the Department of Housing & Urban Development.

 

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You've found a home in a neighborhood where you've always wanted to live. And you can snatch it up at a good price. So what's stopping you?   Could it be the outdated appliances, dark brown exterior,  and wall-to-wall carpeting? It might not be your dream home just yet, but with an FHA 203(k) renovation loan, it could be. With this loan you can purchase the property and get the extra funds you need to remodel, repair, and renovate. It's unique because you can borrow the funds you'll need based on what your house is expected to be worth after the renovation is complete. 

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(photo: Styron Batchelor, third from left; Loan Officer Mark Bynum, third from right; Loan Officer Assistant Jeff Jones, second from right)

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