Little or No Equity Needed in Home to Qualify: This loan allows borrowers to borrow up to 110% of the future value of the property (although most lenders actually cap it between 95% to 103%). The future value is determined with a future value appraisal which is generally the current value plus the improvements. The future value assumes that the improvements have already been performed and that the construction is already completed. In this way this loan acts similar to a construction loan but a 203K usually allows for much higher amount to borrow (in equity). Those with very little and sometimes even no equity in their home often still qualify.
For example: on a 103% Future Value cap loan, a home worth $150K today, but $200K after the improvements may qualify for up to $206K total (or $200K x 103%).
FHA Insures 203K Loans: Why is this a good thing? Since the FHA insures 203K loans, approved lenders are able offer this product that otherwise would likely not exist at all. For example, a infinitesimal number of loan programs actually allow the appraised value of a home to be measured by the use of a Future Value Appraisal such as the 203K does!
Competitive Interest Rates: Considering the potentially higher risk factor for a lender to fund a 203K Home Improvement Loan, lenders are arguably able to offer very competitive rates. This is likely due to the fact that these loans are insured by FHA. In general the rates are slightly higher than conventional loans but also often lower than some alternative choices for a home improvement loan such as hard money loans, construction loans, etc.
Defer up to 6 Mortgage Payments: Sometimes a homeowner or homebuyer might not want to live in the home while construction is going on
Trained Home Inspectors protect the borrower: Most 203K loans require a Trained Consultant who helps educate the borrower as well as protect the borrower and the mortgage company. For example the Consultant inspects each phase of improvements and signs off before the construction company or contractor is allowed to get paid.
[For more information regarding Home Inspectors please see DEFINITIONS and FIND A HOME INSPECTOR under the MORE INFO Section. To find a HUD approved inspector you can also visit the link below]
https://entp.hud.gov/idapp/html/f17cnsltdata.cfm
[For an Approved 203K Lender click here or call 888-299-4484]