All About Qualifying for a 203k Loan
If you are currently a homeowner, there’s a good chance you have compiled a list of various home improvement projects you have been intending to tackle for quite some time. On the other hand, if you are in the process of shopping for a new home, you may have come across multiple listings that require significant tender loving care (TLC) but are located in fantastic neighborhoods with great potential. In either of these situations, a 203(k) Rehab Mortgage could very well be the ideal solution for your needs.
WHAT IS AN FHA 203(k) Rehab Mortgage Loan
Part of the larger Federal Housing Administration (FHA) mortgage program, an FHA 203(k) loan offers mortgage funding to those who would benefit from competitive rates as well as flexible credit and debt-to-income ratio requirements. They’re specifically meant to pay for major or minor home repairs.
If an FHA 203(k) loan sounds exactly like what you need, your first move should be to talk to a Mortgage Loan Originator. They can look through your financial position and provide suggestions specific to you. There are, however, general guidelines you can look through to learn if you are eligible for this loan option. Below are a few things to consider.
Qualifications for an FHA 203(k) loan
The FHA 203(k) loan program was specifically designed to make loan solutions accessible to aspiring homebuyers and current homeowners who may not meet the stringent qualifications typically required for conventional mortgages. As a result, this means that the general eligibility requirements for the program are considerably more flexible and accommodating.
Credit Score
When it comes to securing loans, whether you’re purchasing a car or a home, one significant factor that will always be taken into consideration is your credit score. Fortunately, the process for homebuyers to obtain approval for an FHA-backed home loan is becoming increasingly accessible. If you currently possess a credit score of at least 620 on the FICO scale, you may find yourself eligible for this lending option. However, for individuals whose FICO scores fall below the 620 threshold, there may be additional requirements that must be satisfied to qualify for the loan.
Down payment for Homebuyers
FHA 203(k) loans are a great financing option for homebuyers. By combining a purchase loan and an FHA 203(k) loan, you can save by paying only one set of closing costs. In addition, you can buy a low-cost home in need of some TLC and make the needed repairs before you even move in. FHA loans only require at least a 3.5% down payment. Gift funds are allowed as a partial or full down payment for an FHA 203(k) loan, but documentation is required, including a letter that no repayment of the gift funds is expected.
FHA Maximum Debt-To-Income Ratio of 31/43
As with other loans, FHA loan requirements include a maximum debt-to-income ratio. You’re required to disclose all debts, open lines of credit, and all sources of income. From this information, your Mortgage Loan Originator will evaluate your debt-to-income ratio. The FHA allows you to use 31% of your income towards housing costs and 43% towards housing expenses and other long-term debt. The FHA, however, does offer some flexibility under the right circumstances. Talk to your Mortgage Loan Originator to learn more.
If you’re interested in getting an FHA 203(k) loan, don’t hesitate to reach out to me today.