Beautifying Your Financial Picture

3 Reasons to Use the FHA 203K Home Loan When Buying a Foreclosure

by Darryl Nguyen

When the inventory of available homes is low, as it currently is, it can be very difficult for prospective buyers to locate and purchase a home that is considered ready for immediate occupancy. A good way to expand the selection and help these buyers succeed in finding a suitable home to purchase is to make it easier for them to finance and repair homes that need work before they can be occupied. Good examples of these homes include foreclosures and other distressed properties, short sales, and other privately-owned homes that have not been properly maintained.

If you are a prospective buyer who would like to learn more about obtaining financing for a home that does not fit condition requirements for most home loan options, the following information regarding the Federal Housing Administration's (FHA) 203k home loan may be just what you need. Continue reading to learn three ways this loan might be the best fit for you.

1. Eliminates the need for separate loans

Buying a home that requires a lot of work in order to be habitable once required two loans, a short-term construction loan to cover the repairs and then a separate mortgage to cover the purchase. In most cases, the mortgage could not be finalized until the repairs were completed, a situation that often proves tricky for buyers to navigate. 

With the FHA 203k home loan, however, buyers are able to easily combine both needs into just one convenient, easy-to-manage home loan. 

2. Temporary housing costs can be included

Repairing and renovating any type of distressed property can be significant and time-consuming. Even worse, many buyers and sellers may not be able to agree on a good plan for attending to these repairs before the closing. When buying a distressed property with an FHA 203k home loan, however, the buyer will have up to six months after the day of closing to have all needed repairs and renovations made, and temporary housing costs needed during the construction can usually be included in the loan amount.

3. Qualifying is similar to a standard FHA loan

The standard FHA home loan has helped countless borrowers finance a home purchase in the past, even with less-than-perfect credit or only a minimal down payment. The FHA 203k home loan uses the same basic underwriting guidelines and qualifications, allowing buyers who might struggle with qualifying for stricter conventional loan programs to qualify more easily. 

While the FHA 203k home loan can be the answer for many buyers, there are specific requirements and qualifications that must be met. To learn more about this home loan option and better understand whether it is a good fit for your home buying situation, take time to discuss it more fully with your home mortgage lending professional.