Purchasing a home is one thing that keeps getting more expensive as demand grows and supplies decrease. Still, some homes sell at prices lower than average since they are either outdated or require some repairs.
There are several obstacles to upgrading and repairing a property, with the biggest one is how you pay for it? There is a solution for that, and it comes in the form of FHA 203(k) and VA Rehab home loans. These loans are part of government-protected FHA and VA home loans, which the United States Government guarantees.
Qualifying upgrades that these loans can implement can be something like building an extra bedroom, turning a triplex into a fourplex. Other updates covered by these types of loans include adding a kitchen or fixing the property’s plumbing.
FHA 203(k) Home Loans
These loans have the same benefits as regular FHA home loans, like:
• 3.5% down payments.
• Cosigners can help you qualify.
• FICO credit scores of 580 can qualify for the loan; however, some lenders are willing to approve even lower credit scores.
• Borrowers with two-year-old chapter 7 bankruptcies can qualify.
• Chapter 13 bankruptcy recipients can still qualify; however, they need to have court documentation and 12 months’ worth of paying bills on time.
These types of loans have the same loan limits that regular FHA loans have, depending on the property’s location. Loan limits also vary depending on what kind of property it is, with fourplexes having a higher loan limit than single-family homes.
Also, there are two types of FHA 203(k) loans, streamlined and regular 203(k) FHA programs. The difference between these two loans is that streamlined loans are for non-structural repairs like appliances, flooring, and wall paint, while regular 203(k) loans are for structural repairs.
These loans are for several types of home repairs and upgrades, which include:
• Energy efficiency improvements.
• Adapt property for disabled residents.
• Remove safety and health hazards from the property.
• Change more simple things like carpets, wall paintings, and appliances.
• Large landscaping projects.
• Repair plumbing in the property.
The loan program works by letting you borrow more than the home is worth and using that money to finance the property’s repairs and improvements. Calculating how much the updates will be worth is done by the contractor who will do the work.
VA Rehab and Renovation Home Loans
These types of loans are just like VA home loans, in which they are for veterans, Active Duty Service Members, and surviving spouses of veterans. These loans include some great benefits like:
• $0 down payments.
• No Prime Mortgage Insurance.
• Low mortgage interest rates.
• No prepayment penalties.
• Fixed mortgages range from 15 to 30 years.
• Lower monthly mortgage costs.
VA Rehab loans are for repairs and alterations to properties that qualify for a VA home loan and anything that improves the property’s basic livability. These include the maintenance and repairing of things like:
• Removal of lead paint.
• Flooring repair and replacement.
• Fix and improving insulation.
• Remove potential safety and health hazards from the property.
• Update the home for residents with disabilities.
Other requirements for these loans are that the home you’re fixing or upgrading is your primary residence and that all repairs are completed within 120 days after your closing date. The contractor that will do the repairs is required to have a valid VA identification number.
Conclusion
Having access to 203(k) FHA loans and VA Rehab loans is excellent, especially in today’s housing market where prices keep going up. These loans enable borrowers to buy properties that are sold at a lower than average cost for the area while at the same time allowing them to build equity on that property quickly.
Phil Georgiades is the CLS of FedHome Loan Centers, a brokerage specializing in home loans for first-time homebuyers. He has been practicing real estate as a professional for 22 years. To learn more about available programs to you or if you want to apply for a home loan, call us at (877) 432-5626.