Let’s be realistic. There are no perfect homes and in a tight real estate market, it’s even more difficult to find the right home for your family. There is an option though to finance your dream home with a 203K loan. A 203K loan or renovation loan is a single loan that bundles your mortgage and the estimated costs of home renovations. You can use it to fund renovations such as a kitchen remodel or adding a second bath or office to a house. It can also be used for more extensive renovations such as completely reconstructing a home that is a fixer-upper.
Renovation Loan Process
With a renovation loan, owner-occupant purchases start at 3% down and investor purchases start at 15% down. Here is what the loan process looks like.
- There are two loan programs to choose from—FHA’s 203k and Fannie Mae Homestyle. Understand which program is best for your needs. This chart compares the programs.
- The loan application is approved for your budget and loan amount. The loan amount is the price of the home plus the renovation costs.
- Start looking for a contractor during the pre-approval process.
Select a Property and Make an Offer
- Have a contractor estimate the cost of renovations prior to making an offer on the home to be sure you are within your approved loan amount. If you do not have a contractor yet and want to make an offer, have a HUD consultant do a feasibility study.
- The home purchase contract should be contingent upon an acceptable feasibility study or a contractor’s bid. Typically the contract is as-is and all required repairs are wrapped into the mortgage.
Renovation Property Loan Processing
- If required, obtain a HUD consultant’s write-up.
- Do all home inspections.
- Finalize the bid or write-up and submit it to your lender.
- Your lender will order the appraisal.
- Get the contractor’s approval package.
- Update your income and assets.
- Submit credit conditions to processing.
- Two weeks before closing, all buyer and contractor conditions will be submitted.
- The loan closes as-is.
- Repair funds are escrowed by your lender.
Inspection and Draw Disbursements
- Contact your lender’s draw administrator for funds released based on your loan guidelines.
- Inspections are made as work is completed. Incremental checks are issued to pay the contractor for inspected work.
- The final inspection is done when renovations are 100% completed.
- The escrow account is closed after the final inspection.
We can help you with the renovation loan process. Contact your Zuber Realty agent for more information.