Some home buyers show interest in purchasing fixer-uppers for different reasons. There are some who are up to the challenge of flipping a property for it to be suitable for living again.

Others also see that properties that need a little TLC on sale come with less competition because these require more work after purchase. Significantly, the property usually costs less than a move-in ready home.

Under the Federal Housing Agency, there is a rehab or repair loan available for interested borrowers who wish to buy imperfect properties that need improvements. If you’re thinking about purchasing fixer-uppers that needs a little love but need a loan to finance it, here’s what you need to know about FHA 203k loans.

This way to homeownership.

What are FHA 203k loans?

203k loans are buy-and-repair mortgages that allow borrowers to finance both the property and their much-needed repairs.

Guaranteed by the FHA, these loans are easy to qualify and are less risky for lenders. Other than that, interest rates are generally lower compared to other mortgages.

Oftentimes, a lot of lenders don’t usually support homebuyers who are interested in fixer-uppers. With a 203k loan, that would not be the case anymore.

Other than proving your eligibility, lenders will have to track and verify the repair or rehabilitation needed in the property. The property must still meet certain standards. In a nutshell, the home should not be too damaged that it’s almost impossible to repair it.

How do you know you’re eligible?

Like any other mortgage, interested borrowers have to pass specific eligibility requirements before getting approval.

First, it’s important to emphasize that 203k loans are only available for aspiring homeowners and non-profit organizations. Investors could not qualify.

Second, properties with one to four units are considered eligible. Buyers of condominiums and townhomes can also take advantage of the mortgage to finance interior projects.

Third, there isn’t a strict requirement when it comes to credit but borrowers need to meet income requirements. Your debt-to-income ratios will also be looked into.

Ask our lenders.

How does it work?

The 203k loan approval process is a little different compared to other mortgage processes but there are similarities, too.

Like other mortgage applications, you first have to meet all the requirements in order to get an approval. Next, you need to identify the different home repairs that have to be done on the property you wish to purchase.

Once you have a complete list of the repairs needed, you need to find the right contractor that will address all the needed rehabilitation on the property. Then, you need to get contractor bids.

You have to make sure these bids are complete and detailed. Which is why it’s important to choose a contractor that can deliver what’s needed.

Next, your lender will verify your financial situation and your contractor bids. The loan will then go to its final approval process.

If your mortgage gets approved, you contractor begins working on all the repairs needed on the property. Once it’s all finished, your new home will finally be ready for you to move in!

Become a homeowner with 203k loans

If you’re set on rebuilding a home that needs a little boost, 203k loans is a good mortgage option for you. Not only will you get financing for both the home and its repairs, the property’s equity will automatically build up once the remodeling is done.