FHA 203k Loan Programs

FHA offers the FHA 203k Loan Programs which are acquisition and construction loan all in one closing and one loan. The greatest benefit with a FHA 203k Loan is that unlike other construction mortgage loans, the home buyer only needs a 3.5% down payment of the after improved value of the property where most other construction loans require the property owner to purchase the property and will only lend on 70% to 80% of the loan to value of the construction project. For example, if a home buyer were to purchase a $100,000 property and needs a construction budget of another $100,000 where once the property is completely rehabbed it is valued at $200,000, with a FHA 203k Loan, the home buyer will only need a 3.5% down payment of the $200,000 or $7,000 down payment. FHA 203k Loans are great for home buyers who want to purchase a fixer upper or foreclosure in major need of rehab. The homeowner can gut rehab the home to his or her standards and choosing and in a sense is somewhat like a new construction home. FHA 203k Loans are becoming more and more popular and the whole process is streamlined where there is not a lot of red tape in getting a FHA 203k Loan approved, processed, underwritten, and funded. There are two types of FHA 203k Loan Programs: The FHA 203k Streamline Rehab Loan and the full standard FHA 203k Rehab Loan Program. Many FHA 203k mortgage loan borrowers can refinance after FHA 203k Loan to another mortgage loan program since FHA 203k Loans have annual FHA mortgage insurance premium and FHA 203k Loan mortgage rates are higher than regular FHA Loans and Conventional Loans.

FHA 203k Streamline Rehab Loans

The FHA 203k Streamline Rehab Loans are limited to a maximum construction budget of $35,000. With a FHA 203k Streamline Rehab Loan, you cannot do any structural changes to your existing home nor can you do any additions to your existing home. However, you can do any type of home improvements such as bathroom and kitchen remodeling, basement remodeling, attic remodeling, new floors, painting, new millwork, new appliances, new exterior such as new siding, new roof, new windows, new gutters/sofits/fascia, and any other types of home improvements such as mold remediation, termite remediation, or others. FHA 203k Streamline Loans are a great mortgage loan program if you are a home buyer interested in buying a fixer upper or foreclosure or a buying a home that would not be able to be financed through traditional mortgage loan programs.

Full Standard FHA 203k Loans

The second type of FHA Loans is the full standard FHA 203k Loan Program where there is not construction budget and you can make structural changes as well as do room additions or add ons to your existing property. You can do a complete gut rehab with the full standard FHA 203k Loan Program and even a tear down and rebuild on your existing foundation. The full FHA 203k Loan Program is a great mortgage loan program for that creative home buyer who wants to purchase a fixer upper or foreclosure and customize the home to his or her needs.

Qualifying For FHA 203k Loans

Mortgage lenders consider FHA 203k Loans as riskier loans than traditional FHA Loans. With higher risk come higher mortgage rates. Mortgage rates on FHA 203k Loans are higher than traditional FHA Loans by at least 0.50% to 0.75%. Again, the lower a mortgage loan borrower’s credit scores are, the higher the mortgage rates so if you are considering getting a FHA 203k Loan, the best advice I can give you is to contact me at 262-716-8151 or email us at gcho@gustancho.com where we can help you maximize your credit scores so you can get the lowest possible mortgage rates on a FHA 203k Loan.

Minimum credit scores to qualify for a FHA 203k Loan is 580 FICO.  All other FHA mortgage lending guidelines apply with regards with waiting period after bankruptcy and foreclosure and debt to income ratios. There is a minimum of a two year waiting period after a bankruptcy discharge to qualify for a FHA 203k Loan. There is a mandatory three year waiting period after foreclosure, deed in lieu of foreclosure, short sale to qualify for a FHA 203k Loan. Maximum debt to income ratios permitted for FHA 203k mortgage loan borrowers with credit scores of under 620 FICO is 43% debt to income ratio. If you credit scores are at least 620 FICO or higher, then the maximum debt to income ratio cap is 56.9% back end debt to income ratio and no greater than 46.9% debt to income ratio front end.  You can qualify for a FHA 203k Loan with unpaid collection accounts and charge offs. Charge offs and medical collections are totally exempt and are not considered with us since we are FHA lender with no mortgage lender overlays, However, with non-medical collection accounts with a total aggregate unpaid balance of $2,000 or greater, 5% of the unpaid collection account balance will be used to calculate your debt to income ratios even though you do not have to pay off the unpaid non-medical collection accounts. If you have a large unpaid collection account balance where the 5% will affect your debt to income ratios, then you can enter into a written payment agreement with the creditor and/or collection agency and that monthly payment agreement will be used in lieu of the 5% of the unpaid collection account balance to calculate your debt to income ratios.

Refinance After FHA 203k Loan

Since FHA 203k Loans have higher mortgage rates than traditional FHA Loans, FHA 203k mortgage loan borrowers should consider refinancing their FHA 203k Loan after the project has been complete to either a traditional FHA Loan or other mortgage loan program. Your mortgage loan originator can go over whether refinance after FHA 203k Loan would provide a net tangible benefit for you and how much it will lower your monthly payments as well as how much money you would save. If you are looking for a FHA 203k Rehab mortgage lender with no lender overlays, contact me at 262-716-8151 or email us at gcho@gustancho.com . We are available 7 days a week to answer all of your questions and issue you a solid pre-approval letter.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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