FHA 203k Rehab Loans – Pay for House and Repairs Together in Boston

The real estate crisis which occurred a few years back has caused a record number of foreclosures in Greater Boston. Many of these foreclosed homes now lie in very bad shape (due to the lack of care), and will require you to spend a considerable amount of money on repairs — money which you may not necessarily have. In such situations, a viable option available to you is to get a FHA 203k loan (where the loan amount will be a total of both the cost of the house and the cost of its repairs).

Why the Increase of Homes in Bad Condition?

The housing bubble burst had two affects. First, it caused a lot of people to default on their payments, thereby causing a large number of foreclosures. Second, it lowered the demand for homes to record lows thereby causing a large number of homes to simply lie in neglect. So many homes (because of the lack of regular maintenance) will require repairs when you purchase them. While some may just need minor and relatively cheap repairs, such as replacement of the carpet or the appliances, you may also come across homes requiring major repairs resulting from simple disuse.

The FHA 203k “Rehab” Loan As a Remedy For “Recovered” Homes

Similar to other mortgage loans offered by the FHA, the 203k has the following characteristics:

  1. The 203k is not available to investors of properties – i.e.you must be an owner or occupant.
  2. Your credit score must meet the minimum FHA requirements.
  3. Mortgage insurance premiums must be paid both upfront and on a monthly basis.
  4. The interest rate on the 203k is slightly higher than normal FHA mortgage loans.
  5. Supplemental fee of 1.5% of the repair cost will also be required.
  6. The total amount which you can borrow must be lower than the maximum limit set by the FHA for your specific area.
  7. The repair amount received cannot be used for luxury appliances and renovations (no pool or Jacuzzi).
  8. The money for repairs will not be provided until the job is complete, so make sure your contractor knows this!
  9. If you have expertise in renovation, and plan on making the repairs yourself, you will be paid only for the cost of the materials and not the labor which you put into it.

A FHA 203k will definitely lower your stress, since it will combine both the cost of renovation and the cost of purchasing the house in one. This loan can be used for both purchasing new property as well as a refinancing option to make improvements to the house in which you currently reside. While there are other options, like a home equity loan, which you can use to pay for the repairs, the 203k is an alternative which you should seriously consider before making a decision.

Make sure to contact a good lender in Boston and talk about the 203k rehab loan, since many other regulations are involved which they will know clearly. Additionally, sit down and have a talk with the contractor you plan on using for the repairs and make sure that the contractor knows the relevant rules and nuances of the 203k program.

Phil Ganz (354 Posts)

Philip D. Ganz is a Boston Mortgage Broker and Boston Home Loan specialist. For information, expertise, consulting, or advice about home loans, refinancing mortgages, or commercial property loans, contact Phil with no obligation: 617-529-9317

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