203k Loans – Chicago
The name might be deceiving but a 203k loan is nothing more than an FHA loan for a home that needs major improvements or repairs. If you have your heart set on fixing up a home yourself, this is one of the best programs for it. There are some special rules and regulations that need to be followed when securing a 203k loan, but the qualifying process shouldn’t be any different. This home buying program is great if you’re on a tight budget because run-down homes usually come with a discount. If this interests you, read below to learn more about 203k Loans in Chicago.
If you’re unsure of what FHA means – it stands for Federal Housing Administration. The FHA works with approved lenders like us to provide mortgage insurance on loans. With their support – we can offer competitive rates, low down payment percentages, and cheaper closing costs for any loans within the FHA program.
The 203k Loan can be broken down into some easy steps…
– Find your lender, apply for the loan, and get approved.
– Find your contractor, estimate the repair costs, and plan out the work.
– Close the loan and complete the repairs.
This is just the general flow of a 203k loan – there will be a lot more happening behind the scenes. While your lender will do most of the legwork, they will need your cooperation and patience when completing the process. There will be consistent communication between your lender and you – they will also be requesting documents and information up until the day you close.
203k Loans in Chicago
If you’re looking to finance a 230k Loan in Chicago – there are a surprising number of neighborhoods in and around the city that could be a perfect fit for this program. There are plenty of homes within the $125,000-$300,000 (or even lower) range that are perfect candidates for a 203k. If you’ve found a home in the perfect corner of Chicago, but it needs some serious repairs, this could be the mortgage program for you.
If you are interested in a 203k loan for an investment property or ‘flipping a home’ – this isn’t the right program for you. To secure funding with a 203k loan, you must be the primary resident of the home and stay in it for at least one year before refinancing or selling. Other mortgage programs are designed for investment properties or other home renovations and they will be mentioned below.
Anybody can qualify for a 203k loan if they meet the requirements – the down payment amount and your credit score are two of the largest factors in qualifying for a mortgage. The FHA program is designed to help borrowers – therefore, the minimum down payment amount is 3.5% and the minimum credit score allowed varies depending on your lender – but it usually around 600. There will also be some smaller requirements that can be lender specific.
Private Mortgage Insurance (PMI)
When you make a down payment below 20%, you will be required to have Private Mortgage Insurance (PMI) on top of your typical homeowners’ insurance. PMI funds are used to provide the lender a guarantee in case a borrower defaults. PMI will be factored into your monthly payment and will vary in cost based on the value of your home. It should be similar in price to your regular homeowners’ policy.
Keep in mind, the PMI attached to your mortgage can be canceled once your loan-to-value ratio reaches 80%. When you build 20% equity in your home, you can contact the lender or servicer of your loan to have it canceled.
Types of Home Repairs
There isn’t much you can’t do when it comes to repairs with a 203k loan. As long as the project stays under budget and adds value to the home – your lender will most likely approve of it. Some examples of common repairs or upgrades are: Replacing essentials like the roof, flooring, windows, appliances, the list goes on and on. You can also get approved for a 203k loan if you want to make your home more energy-efficient. The list of potential repairs feels almost endless.
Similar Loan Programs
There are so many mortgage programs and for a good reason – they are designed with specific borrowers in mind. If you don’t think the 203k Loan is right for you, read below to learn more.
Home Equity Line of Credit (HELOC) – The HELOC mortgage program is good for when you need to use some of the equity you’ve built in your house. There is a limit on how much you can take out, but the funds can be used for anything.
Cash-Out Refinance – This popular mortgage program is used to fund projects that will add value to a home, using the current homeowner’s equity. Instead of adding a second mortgage, this program replaces your current mortgage and is a great option to take advantage of low rates or shorter terms.
These are just two similar programs and that can be used for home renovations. Always remember to check with multiple lenders and see what different options are available to you.
There are some setbacks when you choose a 203k loan. There will be a lot of extra paperwork – on top of the normal paperwork – you’ll have to deal with multiple contractors, a strict schedule, and budget.
Overall, a 203k loan is one of the best options in the industry for those looking to purchase a home while making renovations to it. It’s an opportunity to build equity, redesign a home, and become a homeowner all at once.
If you have any questions about financing a 203k loan or would like to start the home buying process today – reach out to Neighborhood Loans!