Buying A House With A FHA 203k Loan


Buying A House With A FHA 203k Loan Explained

Tips In Buying A House With A FHA 203k Loan

Many home buyers think that there is a lot of red tape involved in Buying A House With A FHA 203k Loan. This is not the case and a FHA 203k Rehab Loan is an excellent mortgage loan product for home buyers of fixer uppers to use and have the home of their dreams where they can remodel it like they see fit and some can even have the next thing to a brand new home. Home buyers can do a complete gut and rehab project with a FHA 203k Rehab Loan. You are allowed to do almost anything with a FHA 203k Loan. You can do a room addition, second story addition, remodel your unfinished basement, and remodel your unfinished attic. You can do new bathrooms, kitchens, new appliances, new HVAC systems, new millwork, new windows, new siding, new roofing, new flooring, and a complete gut and rehab construction project. A FHA 203k Loan is the closest to a new construction home you can have with a 3.5% down payment on the after improved value. FHA 203k Loan programs are becoming more and more popular throughout the United States and more and more home buyers are buying a house with a FHA 203k Loan.

Buying A House With A FHA 203k Loan: Types Of FHA 203k Loans

There are two different types of FHA 203k Loans. The first is the FHA 203k Loan Streamline which limited the construction budget to a maximum to $35,000 and the second and more popular FHA 203k Loan Program is the Full Standard FHA 203k Loan which there are no construction budget limit. With the FHA 203k Streamline Loan, you cannot do structural changes to the home or do any room additions. You can do kitchen remodeling, bathroom remodeling, basement remodeling, attic remodeling, HVAC, millwork, roofing, siding, windows, flooring, and any other repairs that does not include structural changes or room additions to the existing home. With the full standard FHA 203k Loan, everything goes and you can do second story room additions, room additions, and whatever you can do with the FHA 203k Streamline Loan. You cannot do luxury construction with any FHA 203k Loans such as adding an inground swimming pool, tennis courts, outdoor spa and jacuzzi, and outdoor kitchens.

Buying A House With A FHA 203k Loan: Requirements

FHA 203k Loans are considered riskier mortgage loans than standard FHA Loans. Mortgage interest rates are generally higher than standard FHA Loans. Most mortgage lenders require higher credit scores on FHA 203k mortgage loan borrowers. However, I have approved and closed many FHA 203k Loans for borrowers with lower credit scores and higher debt to income ratios. Just because you are told that you do not qualify for a FHA 203k Loan with one mortgage lender does not mean that you do not qualify for a FHA 203k Loan with a different FHA 203k Mortgage Lender.

To qualify for a FHA Loan, the borrower needs a minimum credit score of 580 FICO. Minimum down payment required on FHA 203k Loan is 3.5% down payment. The down payment required is on the amount of the after repaired value. For example, if a home buyer were to purchase a home for $100,000 and the cost of the renovation is an additional $100,000, the total cost of the acquisition and construction is $200,000. The home buyer will need 3.5% of the $200,000 or $7,000 to go with this FHA 203k Loan transaction. There are more closing costs with a FHA 203k Loan than a standard FHA Loan. Home buyers do not have to worry about closing costs as long as they can get a sellers concession by the home buyer. FHA allows up to 6% in sellers concessions for home buyers. Sellers concessions can be used to cover all closing costs but not the down payment. Examples of closing costs are title charges, appraisal fees, HUD consultant fees, inspection fees,  pre-paids such as two months escrows for taxes and insurance, one year’s homeowners insurance, upfront points to buy down rates, and other costs that is associated with the closing of the home purchase transaction.

Buying A House With A FHA 203k Loans: FHA 203k Loan Versus Standard FHA Loans

Mortgage lenders consider FHA 203k Loans riskier than standard FHA Loans. Most FHA mortgage lenders do have overlays on FHA 203k Loans. To qualify for a standard FHA Loan, the borrower needs a 580 FICO credit score for a 3.5% down payment home purchase FHA Loan. However, most FHA 203k mortgage lenders will want to see a 620 FICO credit score. Maximum debt to income ratios for standard FHA Loans is 56.9% DTI. However, most FHA 203k mortgage lenders will cap the debt to income ratios to a maximum of 50% DTI.

We are one of the most aggressive FHA 203k Lenders in the country. If you are interested in qualifying for a FHA 203k Loan, please contact us at 262-716-8151 or email us at gcho@gustancho.com.

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