The 203K Experts
The FHA 203k program is an FHA loan that allows borrowers to get one fixed mortgage that is in excess of the purchase price (or current debt) to make required repairs or elective updates. The goal of the loan is to have a house that is safe, sound and meets FHA standards when construction is completed after loan closing.
Between the time a borrower goes under contract and closing, they must figure out exactly WHAT, WHO, and HOW MUCH?
WHAT: Do you want to fix the furnace, roof, or remodel the kitchen? All of this can be done with a 203k. We have helped people add on to their houses, finish the basement, and even move the house to another lot. A written description is required to explain exactly what is going to be fixed or renovated.
WHO: Are you going to use a General Contractor, specialized contractors, fix it by yourself, or a combination of all three? Whoever is going to do the work must be qualified and all local laws and ordinances must be followed. If the county requires a permit, a license will be required.
HOW MUCH: The cost of the renovations will be rolled into the loan and therefore, we need to know how much to put into the repair escrow account. An extra 10% - 20% will be budgeted into the escrow to account for unexpected cost overruns (this is called contingency funds). The 203k fees will also be rolled into the escrow account.
HUD and FHA have a great website that talks about the rules and regulations that are associated with 203k loans and I encourage you to visit their website by clicking here (http://www.hud.gov/offices/hsg/sfh/203k/203kabou.html). The information provided by HUD is great, but sometimes it comes down to the interpretation of the rules set by FHA.
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