A FHA 203(k) loan is a loan that allows you to purchase a house plus get additional money for construction. This type of loan can help expand your options when looking for a house to buy. Just suppose you come across a house in the perfect neighborhood, but it needs a lot of renovation work. With a 203(k) loan, you can purchase the house and with the additional money, fix it to your preferences. Ultimately, you could have the Perfect House!

Think of it this way. When you find a house you love in the perfect neighborhood but the kitchen and bathroom are outdated, such as an ugly yellow kitchen or a bathroom with old, chipped and cracked tile, you can use the 203(k) loan to renovate, remodel, and modernize. These are some of the ways you can use a FHA 203(k) loan to live in the house of your dreams.

The answer is yes. When you’re doing a 203(k) Full, you will need both a 203(k) Consultant and a 203(k) Contractor. The 203(k) Contractor will prepare the estimate. This estimate is given to the 203(k) Consultant, who will review it, inspect the property, and ensure the estimate includes everything needed to meet the minimum housing standards. Once the Consultant reviews the estimate, a Consultant Report is prepared and submitted to you. You will then give the Consultant Report to your lender so you can submit your loan application. Also worth noting, with a 203(k) loan no money is given to the Contractor upfront. In this case, after settlement the renovation money is placed in escrow with the lender.

When the Contractor is ready to be paid, they will contact the Consultant, who will go to the property and do an inspection. The homeowner is also contacted. The Consultant determines what and how much work was done. The Consultant completes a report, takes pictures of the work done, and submits this information to the lender. The Contractor is then paid according to the terms of the agreement.

One of the most common questions Matrix Construction gets asked as a FHA 203(k) Contractor is: Should I get a home inspection if I’m getting a FHA 203(k) loan? The answer is absolutely Yes! As a General Contractor, we need to know what needs fixed at the property. Your home inspector will do a detailed inspection of the entire house. They check things like water and drain lines, they open the electrical panel box and check the electrical system, they go on the roof, they basically check everything related to the house. All this information is put into a Home Inspection Report and given to you. Once we get this report as your Contractor, we can give you a more accurate fix-up cost and the number of surprises we will find once construction starts is greatly reduced. So again, Yes you should definitely get a Home Inspection during the 203(k) loan process.

Keep in mind that your first mortgage payment will not be due until the first of the month following the first full month after your settlement. For example, your settlement is March 15th, your first payment is not due until May 1st. The 203(k) loan realizes that you may not be able to move into the house during the renovations. In order to not create a financial hardship for you as a result of paying both rent and a mortgage at the same time, the loan allows you to finance up to six months worth of mortgage payments in your loan.

So now the question is, how many mortgage payments should I finance into my loan? The answer is, you must first get an accurate timeline from your Contractor. Let’s say your Contractor tells you they can start 15 days after settlement and it’s going to take 90 days to complete all the renovations. Here is how to figure out how many payments to include in your loan; if you settle on March 15th and work starts on April 1st and it will take three months to complete the work, the work should be completed by the end of July. Since your first payment is not due until May 1st, you should consider financing both May and June’s payment.

However, we recommend you finance another month because construction delays are common. In our example, it would be wise to finance three months of payments: May, June, and July. By doing this, you will have less stress if the project runs past the promised completion date and you can always move in earlier if the renovations are done.