203k Loans in NJ
Many local homeowners have turned to 203k Loans in NJ to help them rebuild and rehabilitate their homes that were damaged during Superstorm Sandy.
203k loans have existed for many years, under the Department of Housing and Urban Development (HUD) and the Federal Housing Authority (FHA). However, the popularity of 203k loans in NJ has increased in the past 8 months because so many New Jersey residents are in dire need of financial assistance to get back on their feet and resume their lives as normal.
The 203k loan is a fully disbursed loan which enables the owner of a home or a homeowner who is refinancing to purchase or refinance a property and finance the cost of renovation all with one loan. Due to the fact that the loan is fully disbursed at closing, 203k loans in NJ can be fully insured by the FHA at the loan closing date.
203k loans in NJ are important and distinguishable from traditional mortgages because they take into account the projected value of the home with renovations when assessing the total value of the property. With most traditional mortgages, the lender requires the renovations to be complete before a long-term commitment is made.
There are two methods that the FHA uses to determine the total value of the property. The first method is using the value of the property as is, plus the additional cost of renovation. The second method is calculating 110% of the property value when renovations are complete. The value on which the FHA will guarantee the loan is based on the lower of these two calculations.
203K loans in NJ are a benefit to both local lenders and homeowners. Homeowners like these types of FHA loans because they cut down on some of the hassle of paperwork, the lending process, and ultimately coming up with the money to fund both the purchase or refinance of their home as well as the cost of renovations or rebuilding.
Mortgage lenders in New Jersey like these loans because they diminish the risk and exposure that the lender has, because the loans are guaranteed by the FHA. Normally, lenders would be extremely hesitant to lend money on a home that is in need of significant repairs because there is no guarantee of full repayment and chances of default tend to be higher.
There are several eligibility requirements for 203k loans in NJ.
First, the total cost of renovations must be over $5,000. We all know that this is a very easy minimum threshold to meet, especially here in NJ where products and services tend to cost more than in other states.
Second, the home must be more than one year old and the mortgage must be used to fund a purchase or a refinance.
Third, 203k loans in NJ are eligible for one to four unit properties that are properly zoned.
There are several other requirements and caveats to FHA 203k loans in NJ, pertaining to mixed-use properties, home foundations, and other special cases. As with everything else we discuss here on Rebuild New Jersey, homeowners are best served by consulting with a mortgage lender who specializes in 203k loans in NJ.
Rebuilding your home in the aftermath of a storm such as Sandy is a daunting task. There is so much information out there and it’s difficult to sift through it all and make sense of it. Of course you want to make sure you maximize whatever benefits you are entitled to, including grants, loans and other programs. This is why it is best to consult with your contractor, your bank, your attorney, and as a last resort, with your insurance broker concerning 203k loans in NJ or any other financing methods available.
Here is another article we wrote on 203k loans in NJ:
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