If you are thinking about purchasing a “fixer upper” home and will need financing for it, it is important to know what you need to do ahead of time. Before you even start looking for a home, you should take the time to find the right lender and real estate agent; both will need extensive experience with the 203K loan process to make the process as seamless as possible. The 203K process is not a process to take lightly; you want only experienced people onyour side to ensure that the process goes well from beginning to end. It is well worth the effort involved to ask important questions of any lender that you plan to use to ensure that they know the process well. A few examples include:
- How many 203K loans have you closed?
- How long does the process typically take you to complete?
- Who will service my loan after closing?
- Do you work closely with any particular real estate agents on 203K properties?
- What are your fees in regards to the 203K loan?
- Do you require the use of a HUD consultant?
Once you have these answers, you can choose the lender that you feel the most comfortable with when working on your loan.
After Finding a Home
Once you have a lender and find your dream home, it is time to get the process started. A factor that sets the 203K loan apart from any other loan is the need to have an appraisal completed before determining the loan amount. This step is necessary in order to determine what changes need to be made to the home, as the costs for these changes will be factored into the loan. You can choose to have the appraisal completed first and then work out the cost of the repairs necessary based on the appraiser’s findings or you can have an inspection completed, get estimates for the work that is determined is necessary and then have an appraisal performed with the repairs figured into it. Either method that you choose will help your lender have a future value to base the new loan off of when determining the amount that you are able to obtain.
Closing the 203K Loan
Once all requirements have been met for the loan, you will be able to close on it. The closing will work a little differently than any other type of loan because there will be significant funds placed into an escrow account on your behalf. Just like a regular home closing, the seller will receive his funds right away, but the remaining funds are not disbursed quite yet. The work that is part of requirements of the loan will begin and be paid in regular installments by your lender. Typically, the lender will keep 10 percent of each payment in the escrow account until all work is completed and the home is deemed free of any liens.
The Process Continues
The 203K loan process can continue for up to 6 months. This is why it is necessary to find out who services the loan that you are considering, as that information will allow you to find out the speed at which the lender disburses funds. Certain banks are known for disbursing funds rather slowly, making it difficult to have your projects completed on time. Knowing this information ahead of time can help you to choose your lender wisely.
The 203K loan is a great way to purchase a fixer upper home without having to use too much of the money of out of your own pocket. The loan process is definitely different than any other loan process and will require a little patience and/or dedication to get it completed. Once you get through the hardest part of the process, you will be able to have the work started on your home, allowing you to begin creating the home that you desire.Click to See the Latest Mortgage Rates»