Most mortgage financing plans provide only permanent financing. That is, the lender will not usually close the loan and release the mortgage proceeds unless the condition and value of the property provide adequate loan security. When rehabilitation is involved, this means that a lender typically requires the home improvements to be finished before a long-term mortgage is made.
When a homebuyer wants to purchase a house in need of repair or modernization, the homebuyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods. The Section 203k program was designed to address this situation. The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property. To provide funds for the rehabilitation, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work.
How the Program Can Be Used
This program can be used to accomplish rehabilitation and/or improvement of an existing one-to-four unit dwelling in one of three ways:
To purchase a dwelling and the land on which the dwelling is located and rehabilitate it.
To purchase a dwelling on another site, move it onto a new foundation on the mortgaged property and rehabilitate it.
To refinance existing liens secured against the subject property and rehabilitate such a dwelling.
How long does it take to process and close a 203k loan? After the loan application is taken the borrower and BNC will work together to complete a renovation loan package for the home. A home inspection of the property (we require the use of a 203k consultant for all 203k loans including streamlines), gathering bids from various vendors, developing the draw structure and agreeing upon the length of time to complete construction are all issues that have to be accomplished during this time. The renovation package can take one week to two months to complete depending upon your renovation needs. The total time to process and close a 203k will vary depending upon the time needed to process your credit and the time required to complete the renovation package. 203k loans with a renovation loan package that takes less than four weeks to complete should be in a position to close within 60 days from application (remember all renovation takes place after closing).
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