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FHA 203(b) Vs. FHA 203(k) While an FHA 203(b) loan is primarily used for move-in ready homes, another type of loan, known as the FHA 203(k) loan, exists to assist home buyers who are purchasing a home in need of significant repairs or modifications.
To summarize, an FHA 203(b) loan helps home buyers to purchase turnkey homes that require little to no improvements to be move-in ready. On the flip side, FHA 203(k) loans help borrowers finance homes that need at least $5,000 in necessary repairs or modifications.
There are two types of 203(k) loans: limited 203(k) and standard 203(k). 3 The loans apply only to individuals and families who intend on making the property their primary residence. This means that real estate investors and house flippers do not qualify.
Basic Home Mortgage Loan 203(b) What is the purpose of this program? To provide mortgage insurance for a person to purchase or refinance a principal residence. The mortgage loan is funded by a lending institution, such as a mortgage company, bank, savings and loan association and the mortgage is insured by HUD.
Permits homebuyers and homeowners to finance up to $35,000 into their mortgage to repair, improve, or upgrade their home. Homebuyers and homeowners can quickly and easily tap into cash to pay for property repairs or improvements, such as those identified by a home inspector or an FHA appraiser.
Why might a homebuyer use an FHA 203(k) loan instead of the standard 203(b) loan? To roll the cost of rehabilitating the purchased home into the mortgage. The 203(k) loan is the same as the 203(b) loan, except that it includes funds to be used for rehabilitating the purchased home.
FHA 203(b) mortgages may finance a home purchase of new and existing one- to four- family housing. Loans must be for purchasing primary residences. A borrower may purchase a property with up to four units if the buyer intends to reside in one of the units. How Can Banks Use the FHA 203(b) Program?
An FHA 203(b) loan is an attractive option for many first-time home buyers, as well as real estate investors and current homeowners who are selling their home and buying a new one. It's also a good option for those who are looking to refinance and pay for renovations.
An FHA 203(b) loan is a normal FHA loan, meaning it's accessible to borrowers with a low income and a challenging credit history. FHA loans often require a down payment as low as 3.5% of the purchase price, making this loan type even more accessible to borrowers.
Credit score: You'll need a credit score of at least 500 to qualify for an FHA 203(k) loan, though some lenders may have a higher minimum. Down payment: The minimum down payment for a 203(k) loan is 3.5% if your credit score is 580 or higher. You'll have to put down 10% if your credit score is from 500 to 579.
Lenders require applicants to have a credit score of at least 500 and a maximum debt-to-income ratio (DTI) of 43%. FHA loan borrowers have to pay an upfront mortgage insurance premium (MIP) that's equal to 1.75% of the FHA loan.
Key takeaways. FHA 203(k) loans provide funding to finance both a home's purchase and the cost of repairing it. If you qualify, you can obtain one from an FHA-approved lender.
Downsides Of The FHA 203(k) Loan Program In California:
The interest rates are 0.50% to 1.00% higher than a regular FHA loan. FHA loans, including the 203(k) program, come with Mortgage Insurance (MI). You have to hire a contractor. You must live in the home for at least twelve months before selling or renting the home.
The Standard 203k is not capped at $35,000 and paperwork requirements are a little more intense. Another difference between the two 203k programs is that the Limited 203k requires that the home be “habitable” throughout the period of renovation.
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