203k Loans are an option for OWNER Occupants to finance home improvements with FHA financing via purchases and refinances. Investors cannot get 203k financing. Investors looking for “improvement financing” can self-fund, use hard money, or establish a relationship with a local bank.
The easiest (least painful) 203k loans are “streamlines” that require improvements to cost LESS than $35,000. The money is paid out in 2 installments with checks made payable to both the contractor and the homeowner. 50% of the funds are made available at close of escrow, and 50% are made available when the improvements are complete (as certified by HUD inspector).
The “Loan-to-Value” limits (for purchases) are usually 96.5% x (the cost of the house + the cost of the improvements). Hence, if a house costs $300,000, and the improvements are $30,000, the buyer will bring in 3.5% of $330,000 for a down payment, and the loan amount will be 96.5% of $330,000.
The key to making these loans palatable is getting a smart contractor and getting the bids done correctly. Prescribed procedures and forms must be followed to the letter. Email or call us if you have any questions.
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167