FHA 203k Loan With Low Credit Scores

FHA 203k Loan With Low Credit Scores

Gustan Cho Associates are mortgage brokers licensed in 48 states

Homebuyers can qualify for an FHA loan with low credit scores. FHA 203k loans are acquisition and construction loans all in one closing. Homebuyers interested in buying a fixer-upper, foreclosures, or homes that do not meet construction guidelines for residential loans would need to go with an FHA 203k loan with low credit scores. Lenders will not lend on homes that require repairs, are in poor condition, or are not habitable.

FHA 203k loans allow homebuyers to purchase homes that need either minor or major repairs and homes that are not habitable. Most lenders have tougher mortgage guidelines on 203k Rehab Mortgages than regular FHA Loans due to the added layer of risk. Lenders consider home buyers buying fixer-uppers as risky and may impose mortgage overlays.

What Are Lender Overlays on FHA Loans

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Lender overlays are additional guidelines in addition to the minimum FHA guidelines. Almost all lenders have mortgage lender overlays on FHA 203k Loans due to the risk factors. Most lenders require a minimum credit score of 640 FICO.

However, Gustan Cho Associates can help borrowers qualify for an FHA 203k loan with low credit scores and bad credit. Depending on the loan amount, I have helped borrowers with as low as 580 credit scores qualify for FHA 203k Loans.

How Do I Qualify For FHA 203k Loan With Low Credit Scores

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Dozens of states have been hard-hit after the 2008 Real Estate Market Crash. The real estate market throughout the nation started recovering in early 2012. Home values throughout the United States have started rising, and many areas of New Jersey have seen double-digit housing price increases.

  • Mortgage rates are higher for FHA 203k loans than for standard FHA loans. Expect to receive a rate about 0.75% to 1.0% higher than for a standard FHA mortgage. Still, base FHA rates are some of the lowest on the market, so 203k rates are competitive. You’ll also pay FHA mortgage insurance.

Due to this substantial housing value increase, HUD and FHFA have increased FHA and Conforming Loan Limits for two years. It is almost impossible to purchase a brand-new build home in New Jersey for a reasonable price. Fortunately, for homebuyers of fixer-uppers willing to put in the time and have the patience to rehab their home, they can take advantage of HUD’s 203k Renovation Loan.

FHA 203k Loan With Low Credit Scores: FHA 203k Streamline

What does FHA 203k mean Loan with low credit score: FHA 203k improvement

There are two types of FHA 203k loans. The first type of FHA 203k loan is the FHA 203k loan streamline, which limits the rehab loan amount to $35,000. Homeowners can do any type of remodeling to their home with an FHA 203k Loan Streamline, such as the following:

  • kitchen remodeling
  • bathroom remodeling
  • attic remodeling
  • windows
  • roofing
  • flooring
  • electric
  • plumbing
  • HVAC
  • appliances
  • millwork
  • siding
  • gutters
  • any type of home improvements except for structural improvements and room additions

Standard FHA 203k Loan With Low Credit Scores

The second type of FHA 203k Loan is the full FHA 203k Loan. There is no maximum construction amount allowed. As long as the home will appraise out on an after-improved value and the FHA loan is within the maximum FHA loan limit after improvement.

Homeowners can do all the types of repairs that can be done with a 203k Streamline PLUS structural improvements and room additions with a full 203k.

Down Payment Required on FHA 203k Loans

One of the greatest perks with FHA 203k Loans is that all you need is a 3.5% down payment on a home purchase after-improved value. For example, here is a case scenario. The homebuyer is purchasing a fixer-upper for $100,000 and needs a construction loan for $100,000. The improved value of the property is $200,000. The homebuyer will need 3.5% of the $200,000 after improved value plus closing costs.

Most homebuyers do not need to worry about closing costs. This is because closing costs can be covered by seller concessions or lenders’ credit. Most FHA 203k borrowers just need to worry about the 3.5% down payment. The down payment on FHA loans can be 100% gifted by family members and relatives. This holds true as long as a gift letter is signed by the donor. It needs to state that the gift is only a gift, not a loan, and does not need to be paid back.

Contact Us To Qualify For FHA 203k Loan With Low Credit Scores

Why should you contact us?

New Jersey home buyers of fixer-uppers, foreclosures, or homes that need major renovations and an FHA 203k Loan With Low Credit Scores, contact us at Gustan Cho Associates Mortgage Group at 262-716-8151 or text us for a faster response.

Homebuyers can also email us at gcho@gustancho.com. We are available seven days a week, including holidays and weekends, to answer your questions. Or you may APPLY NOW online at www.gustancho.com and by clicking APPLY NOW on the top right of our website.

This blog on FHA 203k loan with low credit scores and bad credit was updated on November 27th, 2022.

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