Kari McCoy commentary: How to buy and remodel a home with one loan

Question: Dear Kari, My husband and I want to buy a home in a good school district for our children. Our dilemma is all the homes in our price range are old and need too much maintenance and updating. Please offer us some advice. Answer: Thanks for your popular question. Several buyers have found themselves in the same predicament. An exciting answer might be an FHA 203k loan, which is backed by the federal government and allows home buyers to finance the home while at the same time include the repairs and renovations all into one loan. There are two main types of FHA 203k mortgage loans. The first is the regular, or standard, 203k, which is given for properties that need large things like structural repairs and remodeling. The second is the streamlined or limited 203k, which is given for energy conservation improvements, new roofing, new appliances or non-structural repairs such as painting. Additional benefits: less home buyer competition, as most buyers want to purchase a move-in ready home; help buyers obtain the home they really want, and provides the opportunity to build large equity in a short amount of time. Most likely, there will be the need to hire an independent consultant to prepare the costs and examples required to obtain the loan. The 203k loans have a minimum down payment of 3.5 percent of the total price of the home and the costs of improvements combined. The amount home buyers can borrow on the FHA 203 loans are based of credit score, income, debt, type of property and amount of improvements. The amount financed is based on the future value of the home with all the improvements. It is good to note that luxuries such as pools, outdoor fireplace, tennis courts, etc., are deemed eligible expenses by the FHA 203k. As a general rule, any upgrade or enhancement that doesn't improve the actual functioning or attractiveness of the property won't be covered under an FHA 203k loan. Certain types of properties may also be prohibited from application. These include mixed-use properties (which combine residential and commercial space) and co-ops. Be sure to do your research before applying for an FHA 203k loan. After the home with the loan closes escrow, the funds for repairs/improvements go into an escrow account. From this account, a contractor gets paid for the services they complete. The new homeowners will have up to six months to complete all the work. There is a lot of specific paperwork to facilitate the payment of services, and it's important to let your contractor know you're using an FHA 203k loan to fund the project. Several happy homeowners have taken advantage of the FHA 203k loan and say they would only buy another home this way again. Reach out to a local mortgage lender and find more information for your particular situation. I wish you the best! This article is general information only and is not intended for legal advice. See your local attorney for legal advice. Kari McCoy owns the Kari McCoy Group, residential real estate at Lyon Real Estate. She can be reached by text or phone at 916-933-5274 or email her at sold@karimccoygroup.com. #00841588