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Home > Home Buying > Turn a Property Into Your Dream Home with the 203K Loan

Turn a Property Into Your Dream Home with the 203K Loan

March 18, 2022 By Connie Dolansky

203K Loan

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.

Loan Pre-approval

  • 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.

Credit Processing

  • Update your income and assets.
  • Submit credit conditions to processing.

Closing

  • 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.

Filed Under: Home Buying

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201 East Philadelphia Ave
Boyertown, PA 19512

Boyertown office: (610) 369-0303
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