An FHA 203k mortgage is a fantastic loan product for a new home purchase or a refinance. The FHA 203k allows for up to $35,000 in home improvements. Significantly, the cost of home improvements and the actual property are folded into one mortgage, commonly called a first. This mortgage is also especially favorable for first time home buyers as it allows for only a 3.5 percent down payment.
It is a very detailed loan to create and requires a lot of leg work by both the loan officer and buyer. The following steps will prepare you for the comprehensive FHA 203k loan process. Does this Spark an idea?
Instructions
1. Find the right lending institution and loan officer. Not every mortgage brokerage will offer FHA loan products. Further, not every brokerage will have loan officers adept at handling construction loans. To be sure, construction loans are a totally different animal than conventional loans; they require building industry expertise. Further, FHA loans are more complex and require more paperwork. All of which has to be handled effectively if you hope to get approval. So, choose your brokerage firm and loan officer carefully.
2. Provide the necessary documents to the loan officer in a timely manner. These include: copy of both your social security card and divers license, two years of tax returns, two months of bank statements and two current pay stubs. If you are going to be gifted the down payment, make sure you let your loan officer know this and have him provide you with the necessary "Gift Letter", which is required with your loan package.
3. Go through a bidding process for the home improvements you desire. With a cap of $35,000, it is advisable to do a minor kitchen upgrade (mid line appliances, countertops and cabinet doors), a bathroom remodel, flooring and paint. Kitchens and bathrooms give you your best return on investment. Just remember you can spend all of your home improvement money in the kitchen if you don't watch it.
4. Review your contractor bids and compare apples to apples. Once you select a general contractor, let him know you will need three (3) recommendations, license information and insurance information from each company that walks on the project. You will need to submit all of this information to your loan officer as part of the loan package. Unfortunately, there has been fraud with this loan product, so they require intense detail.
5. Once your home improvement pricing has been submitted and your loan submittal package is complete, a appraisal we be ordered.
6. If the bank approves the offer amount for the property based on the appraisal and approves you for the mortgage, the final closing process will commence. With a conditional approval, you can begin to coordinate the project with the general contractor and set a start date. You have up to 6 months to complete the improvements.
7. Work must begin within 30 days of closing. You are allowed to construction draws during the renovation, so plan that carefully with your contractor. Once the home improvements are complete, an final appraisal will be ordered and the mortgage will be closed into the final single or first mortgage.
Tags: loan officer, home improvements, your loan, brokerage will, construction loans, down payment
