The Southern California real estate market is hot right now—really hot. Housing prices have gone up and sales are through the roof. It’s an “up market” and buyers are starting to feel the heat. If you really want to purchase a home in a popular Los Angeles, Orange County, or Newport Beach neighborhood, consider purchasing a fixer-upper and taking out an FHA 203k loan—also known as a “rehab loan.”
The major benefit of a 203k Loan is that you might be able purchase a home you might otherwise be unable to afford.
What’s an FHA 203K loan?
This type of loan combines a typical mortgage with the cost of a home repair loan into one. Say you find a fixer-upper for $200,000. It needs $100,000 worth of work. So, you can put down $20,000 (10%), get a mortgage for $190,000 and then get another $100,000 rolled into that loan for home repairs, for a total loan of $290,000. You pay it down in one monthly payment, just like a regular mortgage.
What’s great is that this is an FHA loan, meaning it’s insured by the Federal Housing Administration. You’ll need to purchase insurance, but that generally means the lending requirements aren’t as strict as for conventional loans. You can put down a smaller down payment as well—as little as 3.5%.
What are the details?
The parameters of the 203k loan are pretty wide. You can use the money to renovate, upgrade, add an addition, or to build a new garage. People use the loan to renovate from top to bottom, from basements to kitchens to attics. You can repair a roof, paint, install new appliances, and more. The loan doesn’t cover so-called “luxury” improvements, like a pool, nor will it work for things that won’t be permanently affixed to the property.
You can opt for one of two types of 203k loans:
- This is a loan for large, expensive projects that may involve structural changes, additions, or renovations that prohibit the owner from occupying the residence. Before the lender will approve a loan, you need to work with a contractor, architect, and/or engineer to provide plans for the work.
- This 203k loan is designed for less expensive improvements that do not exceed $35,000. You don’t need outside consultants’ plans before the loan is approved.
There are limits to the amount of money you can borrow for a standard 203K loan. This aspect can get a little complicated, so it’s best to ask your lender directly.
Get into your dream property with Global Point’s help
Want to purchase a fixer upper in Southern California? Talk to an expert at Global Point Relocation. We are a full-service relocation firm for people who are moving to a new area. Additionally, we offer a full range of services for businesses who relocate their employees. Call us today at (562) 221-0055 to learn more.