The Need-To-Knows About 203k Loans in New York
The state of New York is full of charming fixer-uppers in need of a little TLC to make them the perfect home. For those who’d like a project on their hands, or who just want to spruce up an already beloved homestead, the 203K loan is among the ideal options to finance the cost.
If you’re a homeowner looking for financial assistance for the repair and renovation of your property, here’s what you need to know about the 203K loan in New York:
FAQs about the 203K Loan
1. What is the 203K loan?
The 203K loan is formally known as the Federal Housing Administration 203K rehab loan. It is a type of loan that finances both the purchase of a home and its repair costs into a single consolidated loan.
It’s a very popular choice for home buyers who are interested in purchasing, improving, and repairing a fixer-upper or an older property. In fact, the 203K loan was specifically created to support the purchase and repair of older homes and fixer-uppers. It is aimed toward buyers who wish to purchase or reside in these types of properties.
At its core, the 203K loan was created to support individuals with lower incomes or lower credit scores, to encourage home ownership in their demographic. The appeal of older homes and fixer-uppers is that they are more affordable for these types of home buyers. However, they can be discouraged by repair and renovation costs.
In order to encourage these aspiring homeowners, the 203k loan was consolidated into one loan that supports both purchase and renovation.
The 203K loan also supports remodelling for a property that is already owned, and so can be used by homeowners for repair costs.
2. How do I qualify for the 203K loan?
One of the advantages of the 203K loan is that it offers a lot of flexibility in terms of credit qualifications. Remember, it was created for home buyers with lower credit scores in mind.
In order to qualify, an interested borrower is required to make a downpayment of at least 3.5% of the total cost of the property and repairs.
3. What type of mortgages does the 203K loan offer?
The 203K loan offers two types of mortgages:
- 15 or 30-year fixed-rate mortgages
- Adjustable rate mortgages
The mortgage can vary depending on your lender.
4. How does the 203K loan work?
The 203K loan has a minimum amount set at $5,000. A borrower may loan as much as the value of the property and its repair costs. They may also loan up to 110% of the estimated property value once repairs have been completed.
5. What are the steps to the 203K loan?
Step 1: Find an FHA-approved lender who can help you apply for the loan.
In order to apply, you are required to submit the following:
- the cost for renovation;
- the price to purchase or refinance the property;
- the renovation fees; and,
- contingency reserves of up to 10% to 20% of the renovation bid price.
Step 2: Work with a contractor to create a detailed assessment of your overall renovation cost.
The assessment must be submitted to your lender as part of your application.
Step 3: Have your property appraised to assess the value before and after renovation.
This is known as an As-Completed appraisal.
Step 4: Have your lender forward the documents to a loan underwriter.
Once your application is complete, your lender will forward it to a loan underwriter who will approve your loan.
Step 5: Await your loan’s approval.
It can take up to 60 days to close on a 203K loan.
Step 6: Once your loan is approved, purchase and renovate your fixer-upper!
Once you have received your 203K loan approval, you can sign the closing documents and use your loan to purchase or refinance your property.
The funds will be held in an escrow account that the lender oversees. If you are refinancing, the funds from the loan go to your previous mortgage lender. If you are purchasing the property, they go directly to the seller.
From there, the lender will pay the contractor for repair costs based on an agreed-upon schedule. Once the loan has been approved, remodelling must begin within 30 days, and should be completed within six months.
Need more info?
The 203K loan is a popular option for home buyers hoping to flip fixer-uppers. If you would like to know more about other loan options, Procopio Team at Hunt Real Estate is here to help you get started.
If you are currently located in the state of New York and are interested in working with us, get in touch with us at 315-350-0571 to begin.