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FHA 203k REHAB LOANS

FHA 203k rehab loans allow you to finance the purchase price plus renovations for the home.  It usually serves borrowers who purchase an older or damaged home.  This loan is perfect if you are looking to buy a fixer-upper property and get cash back for repairs.

We will help you choose the right 203k lender, and together, we will compare and select the right loan for your specific needs.

What is a 203k loan, what types of homes qualify, and who is the ideal borrower?

Section 203(k) is a type of home renovation loan offered and backed by the FHA, they are funded by 203k approved mortgage lenders.  The loan covers both the costs to purchase the home and the expenses for renovations and repairs.

This loan is appropriate for you if are looking to buy a home in need of repairs, usually an older home, and rehab it to improve its condition.

The FHA sets criteria for the home and the purchaser to qualify for this type of loan.

Loan Requirements

  • FHA-approved lenders.
  • Stable employment history.
  • No late payments in the last 12 months.

  • No bankruptcies or foreclosures within the past 36 months.

  • Proof of income.

  • Two years of tax returns.

  • 3.5% down payment.

  • 640 minimum credit score.

Property Requirements

  • Single-family homes.

  • 1-4 unit homes which have been completed for one year.

  • Conversions of single units into 2-4 unit properties.

  • Demolished properties where a portion of the original foundation remains.

Two types of FHA 203k loans

There are two types of FHA 203k renovations loans available – standard and streamline.

Standard – this version is for bigger and more extensive remodeling projects, such as structural repairs where you are not able to live in the home during construction.

This loan has more intensive paperwork requirements and buyers will not be permitted to occupy the property while the repairs are completed.

One advantage is that you’ll be able to add six months of mortgage payments into the loan.

A HUD consultant will be in charge of overseeing the project.

We will help you get through the amount of additional paperwork and time required to process this type of loan, do not get discouraged.

Streamline – appropriate for projects that are less extensive and require only cosmetic improvements.  These have a smaller financial requirement of up to $35,000 in funds.

Streamline loans allow you to have only one mortgage payment that includes all expenses necessary to attain the home and do repairs. A HUD contractor will do a bid and give you an estimate of the repairs. You will have an estimated date for the completion of the repairs where a final appraisal can be done and you can get ready for closing.

Pros and Cons of FHA 203k Renovation Loans

  • Low down payment required of 3.5%

    Much lower than many conventional loans.

  • Credit score of 640 or above

    We will explore this requirement with you in case you fall short.

  • Cash back for cosmetic repairs

    This is a lifesaver when you face out-of-pocket expenses.

  • Borrow to cover mortgage payments for up to 6 months

    This helps with your transition while the home reaches minimum conditions for you to move in.

  • Cash back for major repairs

    With standard 203k loans – even big projects allow for cash in your pocket.

  • Adjustable-rate and fixed-rate mortgages

    Available offer flexible options.

CONS

  • Not eligible for investment properties

    Only owner-occupied properties are considered.

  • Requires mortgage insurance premiums

    This is an additional expense that must be worked into the budget.

  • Professional licensed contractors only

    no DYI repairs are allowed.  HUD consultants are in charge of overseeing these projects.

  • Labor and time intensive

    This option is right for you if you have the time and patience necessary to get through the renovation process.  These types of properties are usually not “move-in” ready.

  • Extended closing process

    Although a bit more paperwork is required, I will be able to take you step-by-step to insure a successful closing

Buying a home that needs repairs can mean finding a good deal, however, the drawbacks of buying this type of home should also be considered.  They required a lot of your time and may take months to conclude.

If you are willing to give the time and effort necessary to oversee these types of projects, it may be well worth it.  Working with contractors and overcoming construction setbacks will be part of the deal.  Once you’ve completed the repairs, you’ll be able to enjoy the home according to your specifications.

Although a bit more paperwork is required, we will be able to take you step-by-step to insure a successful closing.