What is an FHA 203k Renovation Loan?

With an FHA 203k renovation loan, you can purchase new home or undertake renovation work in your existing house. Typically, FHA 203k loans are insured and guaranteed by the Federal Housing Administration so, lenders participating in the program face fewer risks in lending money to borrowers. Besides, getting approved for FHA 203k loan could be much easier and hassle-free.

Pros of FHA 203k Rehab Loan

  • Borrower is just required to pay 3.5% down payment for receiving funds to purchase new house or refinancing existing home mortgage. Surplus money can be effectively used for renovating home.
  • With a FHA 203k rehab loan, you will have to handle only one single monthly payment unlike getting a second mortgage for making home improvements wherein there will be second payment.
  • Loan amounts that are sanctioned based on renovated home’s market value. Lenders calculate property price by including cost of renovation for determining the loan amount.
  • When you get approved for a FHA 203k construction loan, you can use the funds for undertaking varied types of home improvements except adding facilities like swimming pool or remodelling bathrooms.
  • It is possible to buy renovated homes which are up to standards laid down by FHA with a 203k loan. The FHA is pretty stringent in its house purchase guidelines.

The Two Major Types Of FHA 203k Loan

FHA 203k loans are available in two major forms – standard loans and streamlined loans. You have to decide the right option for your specific needs and budget. So, there may be a need to plan out your home improvement exercise.

  • Standard Loan - To qualify for standard FHA 203k loan, you must make sure that you will be spending at least $5,000 for renovating your house. Additionally, only permitted tasks are allowed and the work must be supervised by a HUD approved consultant.
  • Streamlined Loan - There is a $35,000 limit for streamlined loan. You can undertake home improvements or repairs within this limit. But the loan dues have to be repaid in 6 months time period and work must begin within 30 days of loan closing.

FHA 203k Rehab Loan For Home Improvements – Eligibility Criteria

The FHA stipulates certain basic eligibility requirements for approving FHA 203k rehab loan applications. These are as mentioned below.

  • Only FHA approved lenders provide 203k loans
  • Applicant must have good employment history
  • There must be no bankruptcy or foreclosure record during past 3 years
  • Borrower must give proof for stable income with copies of 2 years’ income-tax returns
  • Credit score –Borrower must have minimum credit score of 640
  • Down Payment – 3.5% down payment is required to be paid to get 203k loan

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FHA 203k Loan

Repair Types that an FHA 203k will Cover

  • decks, patios, bathroom and kitchen remodels, flooring, plumbing, new siding
  • Major rehabilitation and/or structural repair
  • New addition construction
  • Renovations that require detailed architectural drawings
  • Repair work that will require longer than 3 months or more than 2 payments per specialized contractor

How To Qualify For FHA Renovation 203k Loan?

  • Only FHA approved loan dealers are entitled to provide 203k renovation loan for buying new homes or renovating present houses.
  • Although minimum credit score requirement is 500, applicant must have a credit score of 640 for paying 3.5% down payment.
  • Lenders will ask for copies of last two years’ income tax returns for verifying whether borrower can afford loan payments.
  • To stand any chances of obtaining an early approval, applicant must make sure that his Debt-To-Income ratio is below 43%.
  • Borrower must submit CAIVR report to lender which shows that he has never gone delinquent on any federal loans previously.
  • The current market value of the house as well as costs for renovations must fall within the prescribed FHA limits.