There was a time not so long ago that if you needed a rehab loan you would simply turn to the FHA 203k Rehab Loan. That is no longer the case. There are actually a few options out available when it comes to rehabbing your home – for both purchase and refinance transactions. One of the challenges can be to find that perfect rehab loan to fit your needs. It’s my goal to make that selection easier. Today, I’d like to compare and contrast two of my favorites: The FHA 203k Rehab loan vs the Fannie Mae HomeStyle Rehab loan. Both loans are essentially “one time close construction loans” but they do allow for different repairs and carry different requirements.
Let’s begin with the FHA 203k Rehab Loan. For starters it is an FHA loan which means it is designed for those wishing to purchase homes that will be owner occupied. Often the Underwriting process is a bit easier with FHA. The current FICO requirement is only 640 which is less than a conventional loan. Finally, the down payment is only 3.5%.
What’s nice about the FHA 203k loan is that there are two versions. Depending on the scope of the project you may qualify for the FHA 203k streamlined version which eliminates a lot of the paperwork and as the name implies “streamlines” the process. This version is useful for cosmetic updates and less complicated work.
The full 203k is the one to use when you have structural issues, wish to add square footage, etc. This one does tend to be the most widely used of the two simply because the options are wide open with the full version. There will also be a 203k Consultant on site to monitor the progress, disburse the draws and perform the final inspection.
After having said so much good about the FHA loan it’s important to note, there will be a limit to how much we can lend on this loan product. This is due to the FHA loan limits in your area. As a good rule of thumb for the areas of Texas, Louisiana, Oklahoma, Arkansas, and New Mexico the limit is $271,050. Also if you have a Condo in mind and it’s not FHA approved this loan could not be used. Finally, if you wish to rehab a home that isn’t completed (no Certificate of Occupancy) once again this loan would not be an option.
With all of that being said let’s discuss the Fannie Mae HomeStyle loan becuase some of it’s features may come in handy if you are not eligible for an FHA rehab loan. Since this loan is issued by Fannie Mae it’s a conventional loan which means the loan amount may reach $417,000. In some areas, such as California, the High Balance feature of this loan may come into play and you will be allowed to exceed $417,000.
Also keeping in mind this is a conventional loan the down payment may vary depending on the loan itself. Currently the minimum down payment required is 5% and the minimum FICO requirement is 680.
All the same work allowed by both the full 203k and the streamline 203k is allowed under the HomeStyle program however Fannie Mae also allows for extensive landscaping and luxury items including pools. Luxury items such as outdoor kitchens, spas, and pools may either be installed or repaired under this program. Furthermore, all Condo projects and homes that are not yet finished (no CO) are also allowed!
Speaking of things that are allowed…this loan program includes an option for someone to not only purchase a primary residence but also a second home or investment property!! Yes, this means that investors may purchase or rehab their properties under this program.
As you can see the options are available. I’m here to consult with you to find the best option. All of the bank foreclosures and HUD owned inventory have potential. It’s just going to take a great rehab loan option to realize that potential! Over the years I’ve seen many great home transformed and I’d love to be a part of your home transformation! Call me today.