If you are interested in rehabbing a home in order to create your dream home or if you are in the market to purchase a mixed use property that is both commercial space and residential space, then you need to read this article regarding the 2017 FHA Mixed Use 203K. Here Loan Consultants we are experts in this area and can make this deal happen for our borrowers. Before we go into the mixed use aspect of the FHA 203K, it is good to know the background of the standard residential FHA 203K to get a better understanding of how this loan works if you choose to go down this path.
In an effort to make sure my borrowers are in a complete understanding of this program, it is wise that we go over the residential FHA 203K before we go into how the 203K Mixed Use is handled. For the standard FHA 203K is at its simplest terms a “fixer-upper” loan in the fact that you can buy a home that needs some work and you can get the construction costs rolled into your loan and everything will be included in one payment per month at attractive FHA Mortgage Rates. If you use this program you will not have to worry about costly Home Equity Loans or Home Equity Lines of Credit (HELOC) that you will have to keep track of on a monthly basis. If you are not a new borrower and have an existing home, you are also eligible for this loan as a refinance option to take some money out and make the repairs and upgrades to your home that you desire. There are also 2 types of FHA 203K Loans and they are the Standard 203K and the Streamline 203K. If you would like to go with the Standard 203K there is a minimum loan amount of $5,000 and you will not be allowed to borrow more than the future value of your home after the renovations have been completed. All money requested within the loan must be used for your construction projects as the 203K loan program doesn’t allow you to cash-out. The Standard 203K loan will allow for must construction projects large and small which can include structural changes and additions. For the Streamline 203K you are limited as a borrower to $35,000 maximum renovation amount and there are also restrictions to the types of projects you can do. Some examples of projects that are approved for the Streamline 203K is HVAC repair, roof repair, patios, porches, and basement finishing.
Hidden behind the Standard 203K and the Streamline 203K is the 2017 FHA Mixed Use 203K. This is a little known and little used loan program out there that can assist buyers who are looking to purchase and fix up a property that has both commercial and residential space with it. The one main requirement for this loan program is that the borrower must also be the one who occupies the residential space in the building. There aren’t any limits to the commercial space in the building and can be leased to a new business or an existing business from prior to when the building was sold. Another extremely important guideline in all of this is the ratio of residential space and commercial space within the building. According to the FHA Guidelines that can be found in the HUD 4000.1 Handbook, you will see that there must be at least 51% of the square footage used as residential space and no more than 49% of the space used for commercial space. There is also to a limit to the number of units these buildings can have and per FHA Guidelines the property is limited to having 4 units in total. For example, this would include commercial storefront on the first floor and up to 3 apartments above it.
In most situations you are going to find buildings that are at least 2 stories in height where the commercial space will use the ground floor and the residential space will be upstairs. Now if you are questioning what would happen if you thought the building was split 50/50, there are very slight variables that can be used in order to shift the residential space to at least the 51% mark and it all could come down to a staircase. Now you’re probably wondering how a staircase can be the tie-breaker of square footage in this situation and the logic is quite simple. If you have a commercial space on the first floor, why would they have the need to use the residential space upstairs? There is no need for them to use this staircase so that minimal amount of square footage that is used is considered for the residential space and not the commercial square footage. This would tip the square footage into the residential’s favor and thus satisfy the 51/49 square footage split.
As you can see for borrowers who either want to run their business in the same place that they live or have the idea to rent out the commercial space to offset their loan costs, this loan makes a great deal of sense. These properties are in high demand in larger metropolitan areas where mixed use property is very popular along busy city streets. The 2017 FHA Mixed Use 203K can assist you in becoming a landlord to a commercial business or allow you to get your residential and business loan all in one package. As a borrower you need to make sure there is a minimum investment in rehab work to be done with the residential part of the property. You can’t just use the 2017 FHA Mixed Use 203K to purchase a property and leave it at that. With the rehab funds that you can obtain, you are able to put in a new kitchen, new staircase, new walls, or any other work you can think of.
When looking to qualify for a 2017 FHA Mixed Use 203K, the standard qualifications for these loans are at least a 620 FICO score in order to secure this loan with a 3.5% down payment. For borrowers that fall between 580-619, higher down payments may be required and will need to be evaluated on a case by case basis. Since 203K loans are seen as a riskier proposition, the debt-to-income ratios for these loans are normally capped between 45-50% and will not get near standard FHA Loans of 56.9%. As with any construction project there is a definite risk involved and FHA takes this into consideration accordingly.
If you are looking for a 2017 FHA Mixed Use 203K then you have come to the right place where we are at the forefront of getting these mixed use loans approved and funded to borrowers. If you feel this loan suits you, you need to reach out today so we can take the next step into property ownership. Please feel free to call me any time at 888-900-1020 so we can get a solid plan together for your upcoming purchase and project!