Most mortgage financing plans provide only permanent financing. That is, the lender will not usually close the loan and release the mortgage proceeds unless the condition of value of the property provides adequate loan security, When rehabilitation is involved , this means the lender requires improvements to be finished before a long-term mortgage is concerned.When a homebuyer wants to purchase a house in need of repair or modernization, the homebuyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation constructions; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. The Section 203 (k) loan program was designed to address this situation. The borrower can get just one mortgage loan, at a long term (or adjustable) rate to finance both the acquisition and the rehabilitation of the property. To provide funds for the rehabilitation of the property, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work.
FHA 203 (k) program highlights:
- This is a loan program designed to fund the repair / rehab of an existing home.
- The 203 K Program was designed by FHA to make it easier for homeowners to finance these costs.
- A 203 K loan can be implemented to Purchase or Refinance a property.
- Renovations or repairs to an existing property (built more than one year ago).
- Conversion of a multi-family property to a single family residence; or vice-versa.
- Rebuild a demolished home on the existing foundation.
For further information about FHA 203 (k) loans click here.
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