FHA 203k Rehab Loans To Buy Fixer-Uppers Mortgage Guidelines

This Article Is About Benefits Of Using FHA 203k Rehab Loans To Buy Fixer-Uppers

Home buyers can purchase fixer uppers with FHA 203k Rehab Loans:

  • Homebuyers shopping for a home and run into a home that is perfect but needs updating or major repairs, they are in luck
  • HUD, the parent of FHA, has FHA 203k Rehab Loans
  • 203k Loans enables homebuyers who want to buy fixer-uppers or foreclosures in need of repairs to get an easy construction and acquisition mortgage loan all in one closing
  • 3.5% down payment of the after repair value of the home is required
  • Homeowners can customize fixer upper to their likings
  • They can even customize it by adding rooms by doing second story additions and expanding the home by doing room additions

Types Of Renovations That Are Common For Buyers Of Fixer Uppers

FHA 203k Rehab Loans

Homeowners can gut and rehab the home and add everything new such as the following:

  • kitchens
  • bathrooms
  • basement
  • attic space
  • new windows
  • roof, siding
  • gutters/downspouts
  • appliances
  • HVAC systems
  • electrical
  • plumbing
  • flooring
  • millwork
  • fixtures

The FHA 203k Rehab Loans has been created to implement home buyers who want to finance the cost of home repairs into the new home purchase mortgage loan. In this blog, we will cover and discuss using FHA 203k Rehab Loans to buy a -fixer-upper.

Financing Terms Of FHA 203k Loans

Financing terms of FHA 203k Loans include the original acquisition price of the home as well as the cost of improvements to the home.

  • Home buyers seeking FHA 203k Rehab Loans require a minimum credit score of 580 for a 3.5% down payment after improved value home purchase loan
  • The down payment required is 3.5% of the after improved value of the home which means the appraised value of the property after it has been fully renovated

For example, if the property cost $100,000 and the renovation costs $100,000 and the after repaired value is $200,000, the borrower would need to come up with 3.5% of the $200,000 after repaired value or $7,000 down payment.

Benefits Of 203k Loans

Construction loans have been popular prior to the 2008 Real Estate and Credit Collapse.

  • Now it is next to impossible for a home owner to get a construction or bridge loan unless the homeowner has a lot of equity in their homes
  • With an FHA 203k Rehab Loan, a homeowner can get construction financing at the same time they get a home purchase loan
  • Or can do an FHA 203k Rehab Refinance Mortgage Loan with only a 3.5% down payment or 96.5% Loan to Value

Low Mortgage Rates On Construction Portion Of FHA 203k Mortgages

FHA Rehab Loan History

Both the acquisition and construction financing interest rates are the same.

  • In general, construction financing is considered risky
  • So lenders normally charge a substantially higher interest rate on construction and bridge financing interest rates
  • With FHA 203k Rehab Loans, whatever the acquisition interest rate is, so is the construction portion’s interest rates

For example, if a mortgage rate is 5.25% on FHA mortgage rate, the 5.25% will be the whole cost of the construction budget as well for the term of the 30-year fixed-rate FHA insured mortgage loan.

FHA Rehab Loan History

The United States Department of Housing and Urban Development is the parent of the Federal Housing Administration, also known by many as FHA.

  • FHA has implemented the FHA 203k Loans to promote the revitalization of neighborhoods where homes need rehabilitation and repairs for one to four-unit residential units
  • With 203k Loans, borrowers can use a single mortgage loan for the acquisition and/or refinance of their home plus the cost of repairs of rehabbing their home

Property types include owner occupant properties that are the following:

  • FHA Approved condominiums
  • Townhomes
  • Single-family homes
  • Two to four-unit properties

203k Loans is not available for second homes or investment properties:

Owner-occupied properties only under 203k Lending Guidelines.

Guidelines On FHA 203k Loans

One to four-unit owner occupant properties is eligible for 203k Loans.

  • The home has to have been built for at least one year
  • FHA 203k Rehab Loans allow for a homeowner to convert a one family unit to a two to four-unit family home

Properties that qualify for FHA 203k Rehab Loans include the following:

  • condominiums
  • townhomes
  • modular homes
  • single-family homes
  • two to four-unit residential properties

Cooperatives also are known as co-ops, do not qualify for 203k Loans:

  • Total tear downs or partial teardowns of existing homes and rebuilding it allowed as long as a large percentage of the original foundation remains

Borrowers can take an existing modular home and relocate it to another location with a built foundation with 203k Loans.

Types Of 203k Loans

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There are two types of 203k Rehab Loans.

  • The FHA 203k Streamline Loan has a maximum construction allowance of $35,000 and no structural changes or room additions are allowed

Borrowers can do minor repairs such as the following:

  • kitchen remodeling
  • bathroom remodeling
  • attic remodeling
  • basement remodeling
  • new windows
  • new appliances
  • HVAC systems
  • plumbing
  • electrical
  • decks and porches
  • floors
  • roofs
  • siding
  • painting
  • other simple repairs

The Standard FHA 203k Rehab Loans allows major repairs such as structural changes, room additions, plus there are no construction budget limits and the cost of construction can exceed $35,000.

About The Author Of FHA 203k Rehab Loans Mike Richardson And Tammy Trainor Of Capital Lending Network, Inc.

Mike Richardson is the author of this blog and an associate contributing editor for Gustan Cho Associates Mortgage Group. Mike Richardson is also the President of Capital Lending Network, Inc. and has a team of regional, area, branch, and sales managers nationwide. Capital Lending Network, Inc. is a five-star mortgage company licensed in multiple states with no lender overlays on government and conventional loans. Capital Lending Network, Inc. is headquartered in Redding California and has loan officers and branches throughout the United States. Tammy Trainor is the Chief Operating Officer at Capital Lending Network, Inc. and was the co-contributing writer for this blog. Tammy Trainor is also an associate contributing editor for Gustan Cho Associates.

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