Even a slight upgrade can raise the value of a property. Whether you want to improve your existing home or wish to purchase a place that could use some fixing here and there, the FHA 203k loan can help you fund the home rehabilitation project you have in mind.
What is the FHA 203k Loan?
You may have already heard of the FHA mortgage – a government-insured home loan program that offers more affordable homeownership opportunities to average and low-income families. The FHA 203k operates under the same umbrella but is intended for home improvement.
With very few mortgage companies originating home improvement loans in the past, the FHA decided guaranteed 203k loans as well, to accommodate homebuyer who wish to remodel and upgrade fixer-upper homes to make them more conducive for living.
When you qualify for a 203k mortgage program, you’ll be able to take out a loan for both the purchase and renovation of the property. The best thing is, you only have to get approved once for both loans – it’s like two mortgages in one!
Types of FHA 203(k) Rehabilitation Mortgage
It’s important to note that not all homes will qualify for a 203k loan. The FHA has specific livability standards in place, and the property has to meet those standards for your application to be considered.
Depending on the extent of the improvements that you wish to perform, you may qualify for one of the two 203k loan varieties that best fit your needs. FHA 203k loans are classified according to the scale of the rehabilitation involved.
FHA 203k Standard
The Standard 203k is meant for large-scale and costly renovations that usually involves changing the physical structure of your home. It could be a roof replacement project, building a garage, or extending the floor area of your home.
Basically, you’re free to do any type of upgrade with a Standard 203k, for as long as it’s nothing fancy or luxurious. Amenities like swimming pools, Jacuzzis, and the like are not allowed. A representative of the agency or the mortgage company will inspect the improvements to ensure that it is within standards.
FHA 203k Streamline
Because the 203k Streamline is only meant for smaller remodeling projects, it caps at $35,000. This is more suitable for aesthetic improvements and minor repairs to the home.
Since there’s no major renovation involves, inspection won’t be necessary after completion.
Applying for FHA 203k
Given the less stringent nature of FHA mortgage programs, the 203k could easily be one of the most accessible rehabilitation loans available today.
Some of the more notable advantages of the FHA 203k are:
- 3.5 percent downpayment rate
- 640 minimum credit score requirement
- Provides cash for cosmetic repairs or improvements
- Available in fixed-rate and adjustable-rate mortgage loans
If you’re hoping to rehabilitate a home with the 203k loan, you may find 203k loan consultants online or through the search function on HUD’s official website. You may also consult an FHA-approved lender in your area for a clearer insight into the whole process.