What is an FHA 203(k) loan? It is a federal financing option, and the Federal Housing Administration manages this 203(k) loan program. Mostly, home buyers will use this loan to finance both the purchase of a house and the cost of repairs or remodeling before occupancy.
Our trusted mortgage broker in Fort Worth, TX, explains the FHA loan process for 203(k) loans below. Learn more about when and how you should consider using this type of home renovation loan.
Criteria for the FHA 203(k) Loan
An FHA 203(k) loan isn’t a financing option that people stumble upon. Common criteria around this property improvement loan include:
- You’re buying a house.
- It needs major repairs before you can move into it.
- You aren’t flipping the house.
- You want one loan to cover everything.
Taking out a separate construction loan might be difficult on top of your main mortgage loan. FHA 203(k) loans might give you an easier time borrowing the full amount.
Pros and Cons of the FHA 203(k) Loan
What is an FHA 203(k) loan, and what are the benefits and drawbacks of using it?
Advantages of Taking an FHA 203(k) Loan
Compared to renovation or home equity loans, a 203(k) may accept a lower credit score. You don’t need as large of a down payment with the FHA 203(k) loan either compared to seeking two loans simultaneously. Consequently, it might be easier to obtain a favorable interest rate and loan term by combining the two loans into a single loan.
Are you living elsewhere during the renovation process? You may finance up to six months of mortgage payments with this loan.
Disadvantages of the FHA 203(k) Loan Setup
Are you fixing up the home to sell immediately? This isn’t the loan you want. You have to live in the house for at least one year during or after the repairs end.
Other considerations are:
- Your planned renovations to the property cannot take longer than nine months.
- If you take out an FHA 203(k) loan, you must pay for FHA mortgage insurance.
How You Can Use an FHA 203(k) Loan
Thinking of applying for the FHA 203(k) loan? You have two primary financing options:
Limited 203(k) Loan
What is an FHA 203(k) loan? The limited loan works for remodeling projects that don’t require structural improvements. The cost of the renovations must be less than $75,000 (with no minimum threshold for the repair costs).
Standard 203(k) Loan
Do structural improvements or additions seem viable? You need the standard loan and must have at least $5,000 in repair costs (there is no upper cost limit). Standard loans are the more common borrowing option.
Projects You Can Do on 203(k) Borrowings
When using the 203(k) loan from the FHA, examples of home projects that are okay include:
- Patching foundations
- Adding a garage
- Repairing septic systems
- Fixing a water well
- Installing fencing
- Purchasing appliances
- Renovating landscaping
- Removing health hazards
- Building a deck or porch
Your mortgage broker can help you determine whether your plans fit the Fed’s criteria.
Let Champions Mortgage Help You Understand Your Home Rehabilitation Loan Options
What is an FHA 203(k) loan? If you’d like to know more about the 203(k) loan and how to meet the criteria for FHA loan options for a fixer-upper, our Champions Mortgage team can help. We are a highly trusted mortgage lender that serves clients throughout Texas with low rates that often beat credit unions and a fast turnaround (many of our clients settle their loans within 15 days!).
To learn more about how we can serve you, call Champions Mortgage today at (281) 727-2500.
