If you’re buying a fixer-upper, consider a special FHA loan

If you’re purchasing a “fixer-upper” or are otherwise planning to make major renovations to a home you’re buying, you might want to consider a special type of loan called a “203k” loan from the Federal Housing Administration.

These loans are specifically designed for homes that need major repairs, and they allow you to roll the cost of the repairs into the amount of your mortgage. They’re especially helpful for people who can’t afford an expensive home and are willing to buy a starter home that needs a lot of work. However, they can be used by anyone who wants to invest in a property that needs an upgrade.

The big advantages of 203k loans are that they usually allow a low down payment and they’re often available to people who don’t have great credit.

The disadvantages are that they often have a high interest rate and involve a lot of paperwork, including detailed proposals outlining the cost of each repair and the likely appraised value of the property after the improvements.

Also, they typically require that all improvements be made within six months of the sale.

Properties that need upgrades but not structural repairs may be eligible for a “streamlined” 203k loan, which can make the process somewhat easier.

The FHA has specific rules for what sorts of improvements qualify. In addition to structural repairs, these may include heating, ventilation and air conditioning work; new plumbing, roofing and flooring; kitchen and bathroom remodeling; new appliances; room additions; decks and patios; new siding; finishing an attic or basement; site grading; and improvements for disability access and energy conservation.

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