FHA home loans are mortgages for a primary residence insured by the Federal Housing Administration. Investors cannot purchase or refinance with FHA home loans. There are different types of FHA home loans included FHA insured loans, FHA loans with a repair escrow and FHA 203k loans.
FHA insurable loans means that a property meets the Federal Housing Administration’s minimum property standards. These minimum standards include working heating, plumbing, electrical, roof and mechanical systems. Properties purchased with a FHA insured loan may still need cosmetic improvement, but the mechanical systems must be in working order.
FHA insured with a repair escrow home loans are used to purchase HUD homes listed with a repair escrow of less than $5,000. The repairs a homebuyer may borrow money to fix are minimum property standard repair items such as mechanical systems. If the repairs exceed $5,000, a FHA 203k loan must be used to acquire or refinance a home.
FHA 203k loans are rehab loans used for home improvement. There is also a FHA Streamlined 203k for limited improvements of up to an additional $35,000 to improve or update a home. The repair money is added to the purchase amount (minus the down payment) for payment on one mortgage. Properties must have an appraised value to include the cost of improvements. Purchasing a home for $100,000 and borrowing $25,000 for improvements mean the home must appraise for at least $125,000. Repairs are completed after closing and paid from an escrow account with rehabilitation funds to include a minimum 10% contingency fund.
With a FHA Streamline 203k there are specific repairs that are allowed or not allowed, in order to qualify. Properties in need of major renovation or that requires the repair of structural damage are ineligible for a Streamline 203k. Other restrictions apply.
A FHA 203k loan is more versatile rehab loan and eligible improvements include new appliances, painting, additions like adding a second floor, finishing the basement, and new granite countertops just to name a few. You can also set up a mortgage payment reserve of up to six months of mortgage payments so that you don’t face the burden of two mortgages during the renovation period.
FHA home loans are used to purchase and refinance homes including HUD homes for sale across the country. First time buyers can purchase and renovate a dream home and find great value in HUD owned properties.
For more advice on the steps involved when buying a HUD home, including finding out within 24 hours if your offer has been accepted while saving money on a home priced below market value, contact mortgage loan service providers, the U.S. Department of Housing and Urban Development or the Federal Housing Administration.