FHA 203k Mortgage – A Insurance to Buy and Fix Up a Distressed Home

Have you heard of a rehabilitation insurance for regular buyers?
Many potential buyers don’t realize that they can get a lot of homes for their money by buying a distressed property with a 203K insurance.

The FHA 203K insurance simply aggregates the cost of rehabilitating a distressed property into the total home mortgage.

FHA 203A insurance usage value, explained in simple terms are as follows:

When someone buys a home in ready-to-move-in condition, they are likely to pay the fair market value of that home. If they apply for an FHA insurance, the down payment will be 2.5%. Any modifications they wish to make to make the home “their own”, such as changing the kitchen or bathrooms, will be additional after-sales costs and this cost will be borne by the buyer.

For example, someone buys an apartment in a prefab home with a fair market value of $400,000.
A similar house in the same neighborhood is also for sale, but this house is damaged and in need of updating and repair. For this reason, the buyer will pay much less for this property, and with the FHA203K insurance, the buyer will be able to fix and repair the house to make it to the same standard as the first house. In general, this can be done in aggregate for much less than the cost of the first home, so the new buyer of the distressed home will have immediate equity in the property. This is also referred to as “race equality”.

To illustrate, let’s say you paid 80% of the post-repair value (80% of $400,000), so $320,000 and the property needs $35,000 in rehab and repair. The FHA 203K insurance will allow for a insurance amount of $355,000 that covers both the purchase price plus rehabilitation or repairs to make the home the same standard as the first home, say, a home with a fair market value of $400,000. The added advantage is that you can choose your kitchen or other upgrades and adapt it to your liking during the rehabilitation/repair. You now have $45,000 of equity in the house.

The FHA 203K insurance is ideal for financing the purchase and repairs/rehabilitation with a single insurance, plus all the benefits of an original FHA insurance.

The explanation above is a very simplified form of this process and there are strict guidelines that you will be required to follow when rehabilitating with an FHA203K insurance. Be sure to discuss all of these requirements beforehand with the lender.

For help with a list of distressed homes in Southwest Florida, feel free to visit https://greaterswfl.com/fixer-upper-homes