From Scandia to Minneapolis, homeowners find themselves painted into a corner right now. Many homes have lost value over the last few years. Because of this, home equity has taken a direct hit. So if you’re looking to remodel your kitchen or add a bath to your house, you’re probably not going to find a good home equity line of credit. Since equity is low, the payout on a HELOC is low.
What if there was a way you could pay for your remodeling dreams based on the after-improved equity of the home once the improvements were finished? And what if you could rely on a licensed contractor rather than your own skills and spare time? That’s the idea behind a mortgage program from FHA called the 203k. The FHA 203k is a home improvement loan that allows you to roll the cost of the work directly into the mortgage.
The FHA 203k is not a second mortgage. It’s not a line of credit. It’s one mortgage, one interest rate, one payment. With this loan option you could refinance and remodel your kitchen. You could add a bathroom or another room addition with the Full 203k. A 203k Streamline would help you pay for replacement windows, new flooring and a full house painting.
The 203k can help home buyers get into a fixer upper and turn it into their dream home with their own style and taste. It can also help a current homeowner looking to make some upgrades to a house so their family can grow or the décor can be updated. It’s a great option where current equity lags.
Here’s a look at a few examples of renovations eligible for FHA 203k financing:
- Build a deck
- Kitchen remodeling (including purchase & installation of appliances)
- Add a bathroom
- Room additions
- Basement finishing
- Bathroom remodel
- Repair or build a porch or 3-season room
- Carpet, tile, laminate flooring replacement
- Window replacement
The only work not covered by one of the FHA 203k options is basically luxury items. You wouldn’t be able to pay for an outdoor barbecue, a spa, an in-ground pool or tennis courts as just a few examples. But if you’re looking to upgrade your furnace (or if the house you want to buy needs a furnace) then you could pay for the furnace and installation.
So if you’re looking to make some upgrades to your home and want to figure out how to pay for it, this is one option available. If you have plenty of equity built up in your house, then a HELOC may be your best choice. But if you’re like most Americans right now, borrowing renovation money based of the after-improved value of your home might be the better way to go. If that’s the case, ask your real estate agent, your contractor or your lender about the FHA 203k.