What Are The Types Of 203k Mortgage Loans

This BLOG On What Are Types Of 203k Mortgage Loans Was Written By Gustan Cho NMLS 873293

FHA 203k Mortgage Loans are a residential mortgage loan where a borrower can get an acquisition and construction loan all in one loan program and one closing. Most home buyers who fall in love with an an area or neighborhood but cannot find the perfect home for their families but do see a fixer upper that they can completely gut and rehab and make it their custom dream home would be the ideal candidate for a FHA 203k Mortgage Loan. Also, home buyers who want to purchase a foreclosure or fixer upper would benefit with a FHA 203k Mortgage Loan. There are two types of 203k Mortgage Loans and the qualification requirements on behalf of the borrower is the same for the two types of FHA 203k Mortgage Loans. There are FHA 203k Mortgage Loan Requirements that the borrower needs to qualify for.

Here are the basic FHA Guidelines that the borrower needs to meet to qualify for the two types of 203k Mortgage Loans:

  • Borrowers of a FHA 203k Loan only need a 3.5% down payment for the after improved value of the property. For example, if the cost of the property is $100,000 and it requires $100,000 to rehab the subject property for a total of $200,000 and it appraises for $200,000, then the home buyer would have to come up with 3.5% ofthe $200,000 or $7,000 for the down payment.
  • FHA 203k Mortgage Guidelines allows up to a 6% sellers concession to be used for closing costs
  • Meet minimum 580 FICO Credit Score Requirements
  • You can have outstanding collection accounts and charge off accounts and still qualify for 203k Rehab Mortgages without having to pay off the outstanding collection accounts and charge off accounts
  • If a mortgage lender tells you that you do not qualify for a HUD FHA 203k Loan unless you pay off your outstanding collection accounts and/or charge off accounts it is because they have their own lender overlays on FHA 203k Loans. You DO NOT HAVE TO PAY OFF outstanding collections and/or charge offs to qualify for a FHA Loan including FHA 203k Rehab Loans
  • There is a two year waiting period after a Chapter 7 Bankruptcy to qualify for a FHA 203k Loan
  • You can qualify for a HUD FHA 203k Loan one into a Chapter 13 Bankruptcy repayment plan and there is no waiting period to qualify for a FHA 203k Mortgage after a Chapter 13 Bankruptcy discharged date. However, to qualify for a FHA Loan right after a Chapter 13 Bankruptcy discharged date and the Chapter 13 Bankruptcy discharge has not been seasoned for at least two years, then the FHA Loan needs to be manually underwritten. All manual underwrites require Verification Of Rent also called VOR
  • FHA 203k Mortgages are considered higher risk loans so most lenders do have FHA Overlays on the two types of 203k Mortgage Loans. Debt to income ratios are capped at 50% DTI
  • All FHA Guidelines that apply on regular FHA Loans applies for the two types of 203k Mortgage Loans

The Two Types Of FHA 203k Mortgage Loan Programs

There are two types of 203k Rehab Loans. Below are the two types of 203k Mortgages and the description of them:

  • 203K Streamline: The FHA 203k Streamline Rehab Loan is one of the two types of 203k Mortgage Loans that is designed for borrowers that need minor repairs such as cosmetic rehab with a budget of less than $35,000 in total rehab costs
  • Full Standard FHA 203k Loans are the second types of 203k Mortgage Loans that permit larger home improvement projects such as room additions, major repairs, structural modifications to the home, and complete gut rehab projects with no construction limit but the total acquisition and rehab cost cannot exceed the FHA Loan Limits and the appraisal needs to appraise out after the repairs have been made.

FHA 203k Streamline Loan

The FHA 203k Streamline will limit the type of construction the homeowner can do. You cannot major renovations such as room additions or structural changes with a FHA 203k Streamline Rehab Loan. You are only limited on cosmetic repairs and the value of the property after appraisal cannot exceed 110% Loan To Value after repairs. Cosmetic repairs generally do not increase the market value of a home so HUD is aware that general basic updates on a home will not greatly improve the market value of a property. Here are the types of remodeling can be done with a FHA 203k Streamline Rehab Loan:

  • Kitchen Remodeling
  • Basement Remodeling
  • Attic Remodeling
  • Bathroom Remodeling
  • New Siding
  • New Roofing
  • New HVAC Systems
  • New Windows and Doors
  • New Gutters/Sofits/Fascia
  • Painting, Wallpapering, and new millwork such as new doors, trim, and other woodwork around the exterior and interior of the home
  • New hardwood flooring, carpeting, tiles
  • New appliances

Standard FHA 203k Loans

Standard FHA 203k Loans have no construction funding limits and you can have unlimited rehab budget up to the maximum FHA Loan Limits in your county BUT the home needs to appraise after improved. For example, if you were to purchase a home for $100,000 and needed $150,000 construction budget, the after improved value of the property after repairs needs to appraise at $250,000. The amount of down payment required for the Standard FHA 203k Rehab Loan is 3.5% of the after improved value. Here are cases where a Standard FHA 203k Loan would benefit a home buyer:

  • Home buyers who are purchasing a fixer upper
  • Home buyers who are buying a foreclosure that needs a lot of work
  • Home buyers that are buying a home that is not habitable
  • Home buyers who are buying a home that needs total gut rehab
  • Home buyers who are purchasing a home that needs room additions and substantial addition of square footage

If you think that a FHA 203k Loan is a great fit for you and need more information, please do not hesitate to contact Gustan Cho at 262-716-8151 or email Gustan Cho and The Gustan Cho Team at CrossCountry Mortgage NMLS 3029 at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays. CrossCountry Mortgage NMLS 3029 is a five star national lender licensed in 50 states known for not having any overlays and closing loans in 21 days or less.

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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