FHA 203k Loan Eligibility Requirements And Guidelines


This  BLOG On FHA 203k Loan Eligibility Requirements And Guidelines Was UPDATED On May 8th, 2019

The United States Department of Housing and Urban Development, also know as HUD, is the parent of the Federal Housing Administration, also referred to as FHA. FHA Loans are the most popular mortgage loan program in the United States. FHA Loans are ideal for veteran home Buyers, first time home buyers, and home buyers with bad credit. FHA’s role is to promote home ownership for hard working Americans with little down payment and less than perfect credit.

  • HUD has an acquisition and construction loan program through FHA known as the FHA 203k Loan program
  • FHA 203k Renovation Loans enables home buyers who want to purchase a home that is in need of rehab
  • A home buyer can purchase a foreclosure or REO ( REAL ESTATE OWNED ) property that needs work
  • HUD 203K Loans enables home buyers of fixer-uppers to have the first mortgage as well as the construction loan all in one mortgage closing
  • Minimum of 3.5% down payment on the after-improved value of the property
  • HUD launched the FHA 203k Loan program to promote home ownership in areas where homes need rehabilitation and to promote the revitalization of neighborhoods
  • Per FHA 203k Loan Eligibility Requirements, this loan program is for one to four unit owner occupant residential properties

Types Of FHA 203k Loans

There are two types of FHA 203k Loan programs. FHA 203k Loan Eligibility Requirements are the same for both types of renovation loan programs:

  • The first type of HUD’s 203k Loan program is the FHA 203k Loan Streamline where the maximum construction loan amount limit is $35,000
  • FHA 203k Loan Streamline program is restricted to minor repairs
  • Homeowners cannot do any repairs that require structural changes to the existing home nor any room additions
  • Home buyers who are qualified for FHA 203k Streamline loans can do minor repairs such as the following:
    • remodeling kitchens
    • bathrooms
    • flooring
    • replacing windows
    • replacing doors
    • basement remodeling
    • attic remodeling
    • new appliances
    • siding
    • roofing
    • gut rehab but on the existing foundation
    • HVAC
    • other repairs that do not change the structure of the house

Second Type Of FHA 203k Loans

The second type of FHA 203k Loans is the full standard FHA 203k Loan program. There is no maximum construction loan amount.

  • As long as the home buyer gets an as is an as complete appraisal, the maximum loan amount will be based on the after repaired value of the subject property
  • With the standard FHA 203k loan program, homeowners can do all the renovations allowed with Streamline FHA 203k Loans plus the following:
    • major structural changes
    • room additions
    • second story additions
    • full blown gut rehab

What Are FHA 203k Loan Eligibility Requirements

Most lenders will have lender overlays on FHA 203k Renovation Loans. Mortgage Lender Overlays are additional mortgage guidelines on top of the minimum FHA Guidelines. However, Gustan Cho Associates Mortgage Group has no mortgage overlays on FHA 203k Loans. FHA 203k Loan Eligibility Requirements are no different than any traditional FHA Loans.

Standard FHA guidelines apply for someone to qualify for an FHA 203k Loan.

  • Minimum credit scores required is 580 for a 3.5% of the after repaired value appraisal value down payment
  • For example, here is a typical case scenario:
    • if purchasing a home for $100,000
    • need $100,000 in construction loan
    • after repair value is $200,000
    • 3.5% of the $200,000 is required as the down payment, or $7,000
  • Most home buyers do not have to worry about closing costs because HUD allows up to 6% sellers concessions to cover closing costs
  • Minimum credit scores required to qualify for an FHA 203k Loan is 580
  • Any home buyer who has credit scores under 580, a 10% down payment is required
  • Non-Occupant Co-Borrowers allowed being added to main borrowers

FHA 203k Loans greatest benefit is it gives creative home buyers the opportunity to purchase fixer-uppers and customize it the way they want.  Creative home buyers can really benefit from buying a fixer-upper and doing a complete gut rehab renovation project with FHA 203k Renovation Loans. FHA 203k Loans is available for both purchase and refinance transactions. Homeowners who need a renovation loan and have a current mortgage can refinance their home loan with an FHA 203k Rehab Loan. The new 203k lender will pay off the existing mortgage and start a new FHA 203k Loan. Once the renovations are completed, the loan converts to an end 30 year fixed rate FHA Loan.

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