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 need of significant TLC but which are in great neighborhoods. 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 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 created to put loan solutions in reach of would-be homebuyer and homeowners who might not qualify for conventional mortgages. That means that general requirements are quite flexible.
Credit Score
When it comes to taking out loans, whether it’s for a car or a home, your credit score will always come into play. Fortunately, it’s getting easier for homebuyers to get approved for an FHA-backed home loan. If you currently have at least a 620 FICO score, you may be eligible. Additional requirements may need to be met for those whose FICO scores are below 620.
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.