DENVER, Colo (CBS4) – More and more home buyers are taking advantage of a mortgage that allows you to borrow money for renovations at closing. The Department of Housing and Urban Development told CBS4 that the number of FHA 203K loans closed in Colorado is up 12 percent over the last couple of years.
The 203K loan is a Federal Housing Administration (FHA) product that’s named after the section of the Federal code that creates it. It’s HUD’s primary program for helping homeowners pay for rehabilitation and repair of single family properties.
Colorado mortgage lenders say the loan is becoming more popular as home buyers look at buying bank-owned or other properties that need major repairs.
“After buying a house, your bank account could be depleted a little bit so then where do you get the money for that,” said Ray Williams, branch manager of Summit Home Mortgage, Inc.
Caleb and Brianna Weiss are doing major renovations to their new house. They bought a 1920s bungalow in Denver that was in desperate need of updating.
“You could see the character through the things that needed to be updated,” Brianna Weiss told CBS4.
Construction crews knocked out walls, tore the kitchen down to bare bones and even tossed out the basement floor. When the work is done, there will be a brand new bedroom with bath in the basement, a completely new kitchen and a more modern master suite. The couple are financing the renovations through a 203K mortgage. They’re allowed to get up to $35,000 for construction costs.
“We feel more like we’re making money than we’re spending money,” Caleb commented.
The repair money is rolled into the amount of the loan, making it apart of the monthly mortgage payment. It’s important to make sure that you’ll be able to afford the final monthly payment. FHA rules for the loan also require that the home buyer have bids for the work before closing, permits pulled, and inspections done for each aspect of the work. The mortgage lender manages the money from an escrow account. Right now, FHA rules say that only primary residents are eligible for 203K Loans, but any homeowner can qualify. Some homeowners are refinancing into these loans in order to pay for renovations that will add value to their homes.
“For the average homeowner, it absolutely gives them enough money for what they need so the house is what they want it to be,” Williams added.
Andrew Martin used a 203K loan to turn his condo into what he wanted it to be. He put in a brand new kitchen and two new bathrooms.
“I was looking for a place where I could go through and pick out all the fixtures and really make it my own,” Martin told CBS4.
After 3 weeks of work, he’s enjoying fun fixtures and brand new appliances. Pictures show the water damaged rooms he faced when he bought the place.
“Without that loan I wouldn’t have been able to put any money into the place,” Martin added.
“If you can do it now and be done in 60 days and have the finishes you want that home becomes much more comfortable to you and more often than not there’s added equity,” Williams said.
HUD has extensive information about the 203K Loan on its website.
— Written for the Web by CBS4 Special Projects Producer Libby Smith