Savvy 203K HUD Loan

An affordable alternative

There is a valuable yet under-utilized loan program in New Jersey called the 203k HUD/FHA Rehabilitation Loan Program (203k).  The 203k offers a solution enabling homebuyers to finance the purchase of a home as well as the cost of its rehabilitation through a single mortgage or to finance the repairs of one’s existing home. 

An FHA 203K loan allocates for necessary repairs and desired repairs (wish list) to a property that may not otherwise qualify for bank financing. Additionally, this loan program is available for current homeowners to make property repairs or upgrades.  Considering the real estate market increase in foreclosures and short sales, this loan program has the potential to be readily used.  There are two types of 203k loans – Full k and Streamline k.

The 203k Rehab Loan Program- Full 203k

Simply stated, a Full 203k loan permits the buyer to finance the cost of the repairs in the new loan amount.  The total can be up to 110% of the after improved value determined by the appraiser, the NJ FHA 203k loan consultant, and the lender.  If the buyer chooses a home for $400K that needs $100K in repairs, he can technically borrow $500K with the 203k loan program. 

The down payment is calculated using the sale price plus the final cost of the repairs, including certain costs and reserves the lender will require, multiplied by 3.5%.  So in this example, $500K x 3.5 % = $17,500 in down payment and then the closing costs which are separate.

Essentially, the homebuyer pays the seller for the price of the home and at the same time borrows the additional amount of money which will be held in an escrow account to pay the contractors for the rehabilitation.  A Full 203k can be used for a property that needs structural repairs, or if the repairs will exceed $35,000.  A certified NJ FHA 203k loan consultant should be utilized for the feasibility cost estimates because he will simplify the required paperwork. The NJ FHA 203k loan consultant allows for an efficient process from the work cost study all the way to underwriting.

The types of improvements that borrowers may make using the Full 203k financing can include but are not limited to:

• Structural repairs or reconstruction
• Lead based paint stabilization
• Mold remediation
• Oil tank removal
• Electrical repairs or upgrades
• Plumbing repairs or installations
• Elimination of health and safety hazards
• Gutters and downspouts
• Well water or septic system
• Roofing
• Siding
• Major landscape work and site improvements
• Creating accessibility for disabled
• Energy conservation improvements
• Adding a second level or addition
• Garage
• Kitchen and bathroom renovations
• Floors
• HVAC
• Painting
• Door and window replacement
• Finish basements

The 203k Rehab Loan Program – Streamline 203k

A Streamline 203K is a sensible loan if no structural rehab is necessary and if the cost is $35,000 or less.  In addition, up to $8,000 of energy efficient improvements can be included in a Streamline 203K over the $35,000 limit.  The contractor(s) can prepare the estimate on this loan.  However, the paperwork still requires a detailed written estimate so a homeowner may choose to hire a NJ FHA 203k loan consultant.

If the borrower has owned the home for less than one year, the purchase price must be utilized to determine the maximum mortgage amount allowed.  The Streamline 203k may be used for either discretionary repairs or improvements that may not have been identified during the original inspection or appraisal. 

A homeowner can use the Streamline 203k loan to make any of these repairs plus more:

• Repair or upgrade bathroom
• Repair or upgrade kitchen
• Upgrade appliances 
• Repair or replace floors
• Improve accessibility for disabled persons
• Upgrade roof, gutters, and downspouts
• Fix existing HVAC systems
• Update plumbing and electrical systems
• Paint
• Insulation, weather stripping
• Energy conservation improvements
• Adding an addition
• Replacement windows and doors
• Repair or replace decks, patios, and porches
• Basement finishing, remodeling, waterproofing which does not require structural repairs.

The Process and the Importance of Securing a NJ FHA 203k Loan Consultant

If this loan sounds like a match for your home buying needs or current repair situation in the home you own, click here to learn more about the loan process and securing a NJ FHA 203k loan consultant to ensure success.

Contact Charles “Chuck” Hendershot at (908)256-4285 or chuck@exitrealtygroupnj.com to help you on the path to homeownership as well as repairs to your current home with the 203K loan program.