Refinance Into FHA 203k Loan From Current Mortgage

In this blog, we will cover and discuss how to refinance into FHA 203k loan from an existing home mortgage. Homeowners who are in need of either basic rehab or need to do a full-blown renovation project on their homes can refinance into FHA 203k loan. This holds true even if they do not have a current FHA loan.

Whether homeowners have an FHA, VA, USDA, Conventional, or non-QM loan, they can refinance into FHA 203k loan. The new FHA 203k loan will pay off the homeowner’s current mortgage loan balance. The homeowner will get a new home loan.

The new home loan covers the existing mortgage of home plus the cost of the renovations all in one loan and closing. In this article, we will cover and discuss refinance into FHA 203k loan from an existing mortgage.

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What Is The Role Of HUD

FHA, which stands for the Federal Housing Administration, is part of HUD, which is the United States Department of Housing and Urban Development. FHA is not a mortgage company nor does it fund any residential mortgage loans. FHA’s mission is to insure mortgage loans that meet HUD mortgage lending guidelines.

The loans FHA insures are originated, processed, underwritten, and funded by private mortgage lenders. HUD insures private lenders such as banks and mortgage bankers who are FHA approved and follow FHA lending guidelines. In order for FHA to insure loans originated and funded by private lenders, lenders need to meet all of HUD’s lending guidelines.

If they do not, then the FHA loan is not insurable in the event of borrower default.

What Is A FHA 203k Loan?

FHA has an acquisition and construction loan program for owner-occupied one to four-unit residential properties which a homebuyer can purchase and rehab all in one loan. There are two types of FHA 203k loan programs. The FHA 203k streamline rehab loan:

limits the construction budget to $35,000 and no structural changes can be done or room additions

The Full FHA 203k Loan Program:

there is no limit on the construction budget and major renovations such as changing the structure and room additions are allowed

All FHA loans and FHA 203k loans require a 3.5% down payment on a home purchase. For FHA 203k loans, 3.5% of the after improved value of the property is required. Click here to get apply for FHA 203k Loan

Second Mortgages And Home Equity Lines Of Credit

When homeowners think about doing major repairs to their homes, the first thing they think about is getting a construction loan, second mortgage, or home equity line of credit. Unfortunately, construction loans on residential homes are rather difficult to get. Involves a lot of red tape. Second mortgages and home equity lines of credit require equity and lower loan to values.

Lenders Can Have Higher Lending Requirements on Refinance Into FHA 203k Loan Versus HUD Minimum Guidelines

Most banks require credit scores of higher than 700. Debt to income ratios is normally capped at 43% DTI. The best solution to get a construction rehab loan to renovate a home is to refinance into FHA 203k loan. Homeowners can refinance their current Conventional, FHA, USDA, or VA Loan into an FHA 203k loan. This holds true whether it is an FHA 203k Streamline Loan or a Full FHA 203k loan.

Minimum Requirements To Refinance Into FHA 203k Loan

Refinancing current mortgage loans into an FHA 203k loan is easy. To qualify, borrowers need a minimum credit score of 580. Debt-to-income ratios are capped at 56.9% back-end debt-to-income ratios and 46.9% front-end debt-to-income ratios for borrowers with credit scores higher than 620. FHA 203k applicants with credit scores under 620, the debt to income ratios are capped at 43%. The maximum loan to value is 97.75% on the after improved value.

FHA 203k Loans After Bankruptcy

There is a two-year waiting period after the bankruptcy discharge date to qualify for an FHA loan which also includes FHA 203k loans. There is a three-year mandatory waiting period after foreclosure, deed in lieu of foreclosure, and short sale to qualify for any FHA loans which include FHA 203k loans.

We are a no lender overlay national direct lender. As long as borrowers can get an approve/eligible per DU FINDINGS, we will approve and close the borrower’s loan. For more information on how to refinance into FHA 203k loan from any other loan type, contact Gustan Cho Associates at 800-900-8569 or text us for a faster response. Borrowers can also email us at alex@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, on evenings, weekends, and holidays.

Can You Refinance Into a 203K?

The entire mortgage industry went through a major overhaul after the 2008 Mortgage and Real Estate Meltdown. The entire mortgage sector such as sub-prime lending was totally eliminated from the mortgage industry. Mortgage loan programs such as no doc mortgage loans and stated income mortgage loan programs are no longer in existence.

All mortgage loan programs now require income documentation. Short-term Construction loans and unsecured loans are almost next to impossible to get. In the following paragraphs, we will cover and discuss Refinancing With A FHA 203k Loan To Renovate Home.

Loan Programs To Renovate Homes

Prior to the 2008 mortgage and real estate meltdown, financing was easy and streamlined where most banks and lenders were eager to lend. However, after the 2008 Great Recession, lending got much tougher. A homeowner can no longer go to their local bank and get a $50,000 loan to remodel their kitchen or bathroom or for home improvements. Homeowners who need a second mortgage or home equity line of credit (HELOC) need equity in their homes and need stellar credit.

Do All Mortgage Lenders Have the Same or Similar Lending Requirements on FHA 203k Loans

Most banks will require at least a 700 credit score for them to entertain a second mortgage or home equity line of credit. To get a second mortgage, besides having a 700 FICO credit score, the homeowner would need substantial equity in their homes.

This is because the maximum CLTV that most banks will allow is between 85% CMLTV and 90% CLTV. There is a positive easy solution for homeowners who need to rehab their homes and are in need of serious construction money. Refinancing With A FHA 203k loan is an option for a homeowner who needs to do major renovations to their homes to find the construction funds available to accomplish this project.

Refinancing Into FHA 203k Loan: How Does FHA 203k Loan Work

FHA 203k loans are a construction and acquisition loan programs where a lender will fund the total construction loan amount to do renovations on an owner-occupied one to four-unit property and also fund the acquisition of the property. Refinancing with an FHA 203k loan, the lender will pay off the existing mortgage loan and fund the construction loan all in one mortgage loan program.

FHA 203k Loans are funded by HUD-approved lenders. These loans are insured by the Federal Housing Administration, or FHA, in the event the borrower defaults on their FHA loan. FHA is not a mortgage lender

Role of the U.S. Department of Housing and Urban Development

HUD, the parent of FHA, is a government agency. The role of HUD is to insure FHA loans that have been originated and funded by lenders in the event of the homeowner defaults on their FHA loans. Since FHA only allows a 3.5% down payment on a home purchase, chances are the Lender will lose money if the homeowner were to foreclose on their FHA loan. The loss will be covered by the Federal Housing Administration.

Refinance Into FHA 203k Loan: The Two Different Types of FHA 203k Loans

There are two different types of FHA 203k loans. The first type of FHA 203k loan is the FHA streamline 203k loan where the maximum construction amount is capped at $35,000. Homeowners cannot do any structural changes or room additions with an FHA 203k streamline loan.

However, you can do any other types of improvements such as basement remodeling, attic remodeling, new windows, new siding, new roofing, new kitchens, new bathroom, new HVAC systems, and new appliances. The second type of FHA 203k loan is the full FHA 203k loan where you can do everything that you can do with an FHA 203k streamline loan plus you can do structural changes, room additions, and any other types of repairs including a total gut rehab renovation. There is no maximum construction limit.

Get qualify for FHA 203k loans

Starting The Process Of Refinancing With A FHA 203k Loan

Refinancing With A FHA 203k Loan can be done no matter what mortgage loan program you currently have. You can have a conventional loan, USDA loan, VA loan, or even a current FHA loan and will be able to do a refinancing with an FHA 203k loan. All FHA guidelines just as meeting the minimum credit score requirements, and debt to income ratio requirements.

Most FHA 203k mortgage lenders will have FHA Lender Overlays on FHA 203k loans. For example, most FHA 203k mortgage lenders will require a 640 credit score and will have a debt to income ratio cap of no greater than 43% DTI.

Many lenders will want no collection accounts or charge off accounts on FHA 203k borrowers even though HUD does not require that you pay off outstanding collection accounts and charge off accounts. The good news is that I do not have any lender overlays on FHA loans. Gustan Cho Associates only have minimal overlays on FHA 203k loans.

So if you are looking to get qualified for an FHA 203k loan, feel free to contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. We are available 7 days a week to take your calls and answer any questions you may have.

FAQ: Refinance Into FHA 203k Loan From an Existing Mortgage

1. What is the FHA 203k loan program? The FHA 203k loan program allows homeowners to refinance their existing mortgages into a single loan that covers the mortgage balance and renovation costs. This program is ideal for homeowners needing basic rehab or extensive property renovations.
2. Can homeowners refinance into an FHA 203k loan from any existing mortgage? Yes, homeowners with FHA, VA, USDA, Conventional, or non-QM loans can refinance into an FHA 203k loan, regardless of their current mortgage type.
3. What are the two types of FHA 203k loans? There are two types: FHA 203k Streamline Rehab Loan with a $35,000 construction budget and no structural changes, and Full FHA 203k Loan with no limit on the construction budget and allows major renovations.
4. What are the minimum requirements to refinance into an FHA 203k loan? To be eligible for borrowing, one must have a credit score of at least 580. The debt-to-income ratios should be at most 56.9% back-end DTI if the credit scores are over 620 or 43% for credit scores below 620. The maximum loan-to-value allowed is 97.75% based on the after-improved value.
5. How soon after bankruptcy or foreclosure can borrowers qualify for an FHA 203k loan? After filing for bankruptcy, there are two years to qualify for an FHA loan, which also applies to FHA 203k loans. Similarly, if you have gone through foreclosure, a deed instead of foreclosure, or a short sale, you must wait three years before being eligible for an FHA loan.
6. Do all mortgage lenders have the same lending requirements for FHA 203k loans? Lenders may have varying credit score requirements, debt-to-income ratio caps, and overlays on FHA 203k loans. Lenders may have criteria that exceed the minimum guidelines HUD sets. This could mean a requirement for higher credit scores or lower DTI ratios.
7. How does the FHA 203k loan refinancing process work? Lenders fund the total construction loan amount for renovations and the acquisition of the property, paying off the existing mortgage and combining it with the construction loan into one FHA 203k loan.