What Are FHA 203k Loans And Lending Guidelines


What Are FHA 203k Loans And Lending Guidelines

This BLOG On What Are FHA 203k Loans And Lending Guidelines Was UPDATED On June 7th, 2018

FHA 203k Loans  are called rehab mortgage loans.

  • With a FHA 203k Loan, home buyers can purchase a property that needs repairs
  • Lenders will lend cost of the home plus the repair costs all in one mortgage loan
  • There are two different types of FHA 203k Loans
    • The FHA 203k Streamline Loan which limits the cost of repairs to $35,000
    • Homeowners can do minor repairs such as the following:
      • kitchens
      • bathrooms
      • basement, attic
      • mechanical systems
      • windows
      • flooring siding
      • gutters
      • sofits
      • fascia
      • exterior siding
      • painting
      • appliances
      • other non-structural repairs
    • The full standard FHA 203k Loan has no construction budget limit and homeowners can do the following:
      • room additions
      • second story additions
      • structural improvement
      • Any project that can be done with FHA 203k Streamline mortgage loan can be done with full standard FHA 203k Loans
  • FHA 203k Loans gives a home buyer an opportunity to purchase a fixer upper and customize it the way they want

FHA 203k Loans Is The Next Best Thing To A Custom Built Home

Unless buyers custom build their home, a home that is already built will most likely not satisfy home buyers needs.

  • May find a home in a perfect neighborhood but the home may be too small
  • May have found a home in a perfect lot but the home may be too small or need a lot of work
  • May have found a perfect home but it only has two bedrooms but family need three bedrooms
  • May have found a home that is perfect but the home is old and in dire need of a major rehab but do not have the money after the down payment
  • All of the above case scenarios can be solved by purchasing a home in need of rehab or major construction through HUD’s FHA 203k Loans
  • The FHA 203k Loan program is the next best thing to new construction
  • FHA 203k Loans enables buyers to purchase a home in major need of repairs and can customize it the way owners want which also include a complete gut rehab
  • With a FHA 203k Loan, homeowners can turn that old tired home on a perfect lot into a brand new home that is customized to family’s needs

HUD’s FHA 203k Loan Program

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

  • FHA has created the FHA 203k Loans to promote home ownership in distressed areas
  • It was also created to help homeowners who were motivated to purchase distressed properties in need of rehabs and make them habitable again
  • By rehabbing vacant homes or homes in need of major repairs, it will also revitalize the neighborhoods
  • It promotes stability in neighborhoods and also promotes home ownership
  • FHA 203k Loans is one of the most popular mortgage loan programs today
  • It doesn’t just attract home buyers seeking home loan with bad credit but buyers with stellar credit as well
  • It is almost next to impossible to get a construction or rehab loan from banks and credit unions
  • After the real estate and mortgage meltdown of 2008, construction and rehab loans have become extinct
  • They are very few banks and lenders that offer then
  • Borrowers needs stellar credit and reserves and extremely low debt to income ratios
  • Now, with HUD’s FHA 203k Loans, acquisition and rehab loans is extremely easy and streamlined
  • A borrowers need is a 580 credit score and 3.5% down payment on the after improved value of the home

Types Of FHA 203k Loans

There are two types of FHA 203k Loans available to home buyers and homeowners seeking FHA 203k Loans.

  • The standard full FHA 203k Loan is for home buyers or homeowners who need extensive rehab to their homes such as the following:
    • room additions
    • second story additions
    • structural work on their home
  • There is no cost or repair limit as long as the after improved value appraises out
  • Home buyers or homeowners needing more than $35,000 in repairs to their homes will need to apply for the full FHA 203k Loan

FHA 203k Streamline Loans

The second type of FHA 203k Loan program is the FHA 203k Streamline loan which the maximum loan amount on the repair is capped at $35,000. This includes reserves and costs of permits, consulting fees, and other fees.

  • The FHA 203k Streamline loan is for minor repairs such as the following:
    • kitchens
    • bathrooms
    • basement remodeling
    • attic remodeling
    • windows
    • flooring
    • mechanical systems
    • exterior siding
    • roofing
    • gutters
    • other non-structural rehab
  • There is a 20% contingency reserve requirement in the event estimated cost of construction exceeds the initial proposed construction budget and in the event of construction cost overruns
  • This reserve will be deducted from the $35,000 rehab financed amount and set in escrow

Buyers of fixer uppers needing to qualify for a FHA 203k Loan, contact me at gcho@gustancho.com or call me at 262-716-8151.  Borrowers can apply online by clicking on APPLY NOW FOR A FHA 203K LOAN and get pre-approved today for a FHA 203k Loan.

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