An FHA 203k loan will allow a prospective buyer to compete with the “all cash” investor. An FHA 203K loan will allow for necessary repairs to a property that would not otherwise qualify for bank financing. This financing is also available for current homeowners to make property repairs or upgrades.

There are 2 types of 203K loans: Full “K” and Streamline “K.”

A full 203k is used for a property that needs structural repairs, or if the repairs will exceed $35,000. Normally a certified HUD plan consultant will be used for work cost estimates. A HUD reviewer makes the paperwork a lot easier because the average contractor will not be familiar with the documentation. The reviewer just allows for a smoother flow, but the HUD reviewer will not do the repairs.

A streamline 203K is the best loan if no structural repairs are necessary and if the scope of work is $35,000 or less. Up to $8,000 of energy efficient improvements may be added to a streamline 203K in excess of the $35,000 limit. The contractor usually prepares the estimate on this loan. The paperwork is less so it can easily be done with without a HUD plan consultant but the written estimate must be detailed.

A full FHA 203k and a Streamline 203K will allow for the use of multiple contractors if that is your desire. You may have a contractor that specializes in flooring, and another that is a licensed plumber. This is allowed, but written estimates must be obtained from each.

The normal process flow is as follows:

• Get Pre-Approved by a Qualified Lender. This is a MUST. I am a Qualified FHA 203K Lender.
  

• Find a home and make an offer.

• If the offer is accepted, chose your contractors and get written work estimates. When a HUD plan consultant is used they will prepare the estimates and paperwork.

• The contract, repair estimates, and necessary paperwork are delivered to a qualified 203k lending specialist. (We are qualified specialists.)

• A mortgage application is prepared.

• The work estimates are given to the appraiser. The appraiser will prepare an  appraisal with a value “subject to” completion of the work.

• The loan is underwritten and approved.

• The seller is paid. You are the new homeowner.

• Work begins.

The contractors will have up to 6 month to complete the necessary repairs. Of course the repairs can be completed sooner. It will depend on the amount of work requested or required. They will be paid in increments as the work is done and inspected.

If there is a lot of required work, a full 203k has a provision where you may remain in your current home with no mortgage payments due while work is ongoing.

If you have more questions or need additional assistance on a New Jersey FHA 203k loan:

Contact me at 732-207-8434, or email mark@njfhapro.com.

I am a New Jersey FHA 203K Lending Specialist!

The current calculation (as of 04/09/2012) for up front mortgage insurance (UFMIP) is 1.75% of the loan amount. It is financed within the loan.

Ex: A $100,000 loan (base loan amount) will have UFMIP of $1,000. The new loan amount will be $101,000.

The monthly mortgage is currently 1.25% of the base loan amount. The calculation is as follows:

Base Loan Amount: $100,000 x 1.25% = $1,250/12 = $104.17.

The monthly mortgage insurance does expire. It will last for at least 5 years or 22% equity, whichever comes last.

*Calculations are based upon a 30 year amortization and loan to values >95%. Mortgage insurance will be lower on shorter terms and lower loan to values. Loans  over $625,500, 15 year mortgages, and Streamline refinances have different mortgage insurance calculations.