FHA 203k Renovation Loans
Highlights of the FHA 203k Renovation
- Minimal down payment of only 3.5% required
- Availability of “rehabilitating/remodeling” without the need of a second loan
- Ability to finance up to 110% of after improved value
- Borrower has six months to complete improvements to the dwelling
- Borrower may finance up to first 6 months mortgage payments if property cannot be occupied during renovation
- Use 75% of rental income to qualify
What is an FHA 203k Renovation Loan?
An FHA 203k Renovation Loan is a Federal Housing Administration insured loan used to renovate and/or improve an existing 1-4 unit home. Also known as “rehab loans”, an FHA 203k loan allows buyers to borrow the funds for both the purchase and renovation of a home giving the availability of “rehabilitating/remodeling” without the need of a second loan.
An FHA 203k Renovation Loan is designed to be used for more complex projects such as structural changes (room additions, exterior grading and landscaping) or reconstruction that would prevent you from immediately moving into the home. It is also used for renovations requiring engineering or architectural drawings and inspections. There is a minimum rehabilitation cost of $5,000 with restrictions only against luxury items such as installing a new swimming pool, saunas, tennis courts, exterior hot tubs, barbecue pits and satellite dishes.
How an FHA 203k Renovation Loan Works:
An FHA 203k mortgage provides financing for both the purchase and renovation of a home rolled into one mortgage loan. Once the home is purchased and the loan is closed, renovation funds are held in escrow to pay for pre-determined renovation work to be completed by an approved renovation contractor.
Loan limits, credit qualification, down payment and other requirements are the same as standard FHA loans. Supplementary guidelines are set forth specific to 203k loans to provide for renovation of the home.
FHA 203k Renovation Loan Step-By-Step - Click here to see a detailed guideline of the 203k renovation process.
- STEP ONE - Contractor Selection
- STEP TWO - Loan Application
- STEP THREE - Loan Processing
- STEP FOUR - Loan Credit Review
- STEP FIVE - Loan Processing
- STEP SIX - Loan Closing
- STEP SEVEN - Renovation Begins
- STEP EIGHT - Making Payments
- STEP NINE - Obtaining a Draw
- STEP TEN - Project Completion