203(k) Rehab
Is a 203(k) Rehab Mortgage right for you? If you’re a homeowner, you may have a list of home improvement projects you’ve been meaning to tackle. If you’re shopping for a home, you may have seen listings in great neighborhoods but need significant TLC. In both instances, a 203(k) Rehab Mortgage may be the right solution for you.
WHAT IS AN FHA 203(k) Rehab Mortgage Loan
Part of the larger Federal Housing Administration (FHA) mortgage program, an FHA 203(k) loan is designed to offer mortgage funding to borrowers who would benefit from flexible credit and debt-to-income ratio requirements.
An FHA 203(k) rehab loan offers competitive rates and is meant to pay for both major and minor home repairs. When considering this loan solution, keep in mind that it:
- Is only applicable to primary residences
- Focuses on repairs and fixes as opposed to “luxury” improvements
- Establishes an escrow account that holds the money for your contractor
TYPES OF FHA 203(k) Rehab LOANS (Standard and Limited)
There are two types of FHA 203(k) loans. The limited (formerly known as the streamline 203(k)) and the standard.
The FHA 203(k) limited, as the name may suggest, tops its funding at $35,000 and will help fund cosmetic changes. This can mean, for example, repairs to your front steps, a fresh coat of paint or the purchase and installation of appliances. It might be helpful to think of the FHA 203(k) limited as a loan that covers repairs that can be done while the house is still habitable.
An FHA 203(k) standard loan, on the other hand, funds major renovations or structural changes that cost a minimum of $5,000. The cap varies depending on the community. With this loan option, you can replace, construct or demolish different parts of your home – even wholesale gutting of certain rooms. Perhaps the only downside of the 203(k) standard, when compared to limited, is that the 203(k) standard involves additional paperwork and working with a HUD “consultant.” However, your Mortgage Loan Originator can handle most, if not all, of these aspects.
For homebuyers specifically, these two sides of the same program provide the added benefit of combining with a purchase loan. This means buyers only have to pay one set of closing costs. It also allows you to close the loan before your contractor begins their work. Depending on your situation, this could be the difference between buying a home or having to move on since many sellers won’t allow construction before the sale closes (they would still technically own the home)!
Choose the Renovation loan financing that’s right for you
These programs are incredibly robust and allow you to take a fixer-upper and make it the home you’ve always wanted.
As a homeowner, you are in the driver’s seat when choosing how to fund home improvement projects. The only issue may be understanding which loan is the right fit for your goals.
Summary
For homeowners or home buyers looking to tackle home improvement projects, an FHA 203(k) rehab mortgage loan can be an ideal financing solution. Part of the broader FHA mortgage program, 203(k) loans offer flexible credit and debt-to-income requirements to make home renovations more accessible.
There are two main types of FHA 203(k) loans:
- 203(k) Limited - Caps funding at $35,000 and covers cosmetic repairs and fixes that can be done while the home is still occupied. This could include things like updating appliances or repairing the front steps.
- 203(k) Standard - Finances major renovations or structural changes costing at least $5,000. The funding cap varies by location. This allows for more extensive work like room additions, demolition, or full-scale gutting.
Both 203(k) loan options can be combined with a home purchase mortgage, allowing buyers to complete renovations before moving in and only pay one set of closing costs.
For homeowners, these flexible FHA rehab loans provide a way to transform fixer-uppers into dream homes. Working with an experienced mortgage lender can help ensure borrowers choose the right 203(k) loan to fit their specific renovation needs and financial situation.
As a mortgage professional in one of the nation’s top renovation lenders — Homebridge has been named a top FHA 203(k) lender by HUD for the last several years — I understand how to deliver service that provides the personal touch your goals require. Our mission is to provide an FHA 203(k) rehab mortgage process that is simple, easy and enjoyable.
Contact me today to learn more about FHA 203(k) rehab loans!