There seems to be a lot of confusion surrounding the FHA 203k loan program. While it is an excellent tool for homebuyers looking to purchase properties in need of a little rehab, many likely candidates avoid the product because they simply don’t know what it is. So just what is 203k construction financing and what can you do with it?
The simple answer is that 203k is a renovation loan that allows you to finance the purchase and any improvements to a property as long as you intend to owner-occupy it. New construction cannot be financed with this loan, but within existing structures you can do anything from moving interior wall, to repairing foundations, to installing new plumbing, to replacing the kitchen.
Best of all, this loan can be used on single families and multifamilies up to four units. It is perfect for someone who wants to pay purchase a foreclosure home or multifamily. With multifamilies, once the project is completed it is not uncommon to pay little to no mortgage out of pocket because your tenant’s rent pays it for you. This enables you stretch your pennies for retirement or anything else you enjoy.
These loans are still relatively easy to qualify for with a credit score 640 or higher, as long as the loan amount is no more than $281,250 (St. Louis maximum). This means you could buy a home for $25,000 and spend over $250,000 fixing it up or buy a $250,000 home and put $25,000 into it and still be within the guidelines. Any combination of rehab and purchase works up to the $281,250 limit. This flexibility allows you to find a property with potential and fix it up the way you want it.
*NOTE – Special thanks to Sean Zalmanoff of USA Mortgage for putting together this post. For more information on 203k loans in St. Lous, Missouri, contact Sean at 314-361-9979 or via email.
Check out part 1 in the Owner Occupant Investor series for more on the benefits of owner-occupying a multi-family property.