What Are Rehab Loans And How Do I Qualify For Them?

This Blog On What Are Rehab Loans Was Written By Gustan Cho NMLS 873293

A FHA 203k Loan is often referred to as Rehab Loans. Rehab Loans enables home buyers to purchase a fixer upper or foreclosure with an acquisition PLUS a rehab loan to finance a combination of a purchase along the renovation loan through a single mortgage. Homeowners can also refinance their current mortgage into Rehab Loans through a FHA 203k Loan.

Here is how Rehab Loans through a FHA 203k Loan Program works:

  • Borrowers of FHA 203k Renovation Loans needs to qualify for a FHA Loan with regards to credit, debt to income ratio, and all FHA Guidelines
  • Minimum credit requirements to qualify for a FHA Loan is 580 FICO Credit Score
  • Borrower can borrow up to the maximum FHA Loan Limits for their area
  • The amount of down payment required on FHA 203k Rehab Loans is 3.5% of the after improved value of the home
  • FHA 203k Loans are only available for owner occupant primary residence one to four unit properties. Second homes and investment homes are not eligible for FHA 203k Renovation Loans
  • Homeowners can refinance their current home loan with a FHA 203k Refinance Loan if they need funding for repairs to their home
  • Streamline FHA 203k Loans have maximum budget of $35,000
  • Standard Full FHA 203k Loans have no maximum construction budget

Renovation Loans through the FHA 203k Loan program allows home buyers or homeowners to do renovations to their homes without plenty of equity in their homes. Home buyers can purchase a home that needs major repairs and improvements and gut and rehab that home and make it a custom home and even do room additions and remodel it the way they want. Most banks and lenders normally do not lend on properties that need repairs and are not habitable. With a FHA 203k Loan, you can purchase any home that is not habitable and get the construction budget to make it into a new home.

Qualification Requirements On FHA 203k Rehab Loans

As mentioned earlier, to qualify for FHA 203k Rehab Loans, the borrower needs to meet all of the FHA Guidelines. However, there are property requirements that needs to be met as well. The United States Department of Housing and Urban Development is the parent of the Federal Housing Administration or FHA and HUD sets all FHA Guidelines.

Here are the HUD Guidelines on FHA 203k Rehab Loans:

  • One to four unit properties that need updates, cosmetic repairs
  • Two types of FHA 203k Rehab Loans
  • Streamline FHA 203k Rehab Loans
  • Standard FHA 203k Rehab Loans
  • Need Scope of Work and cost of repairs
  • HUD Consultant required and on a Streamline FHA 203k Loan
  • Repair Escrow will be established after closing
  • All renovations needs to be initiated within 30 days of closing and needs to be completed no later than six months
  • With Streamline FHA 203k Loans, 50% of the construction amount is given upfront within 15 days of the closing of the loan and the balance of the construction amount is given at completion

Advantages Of Renovation Loans Through The FHA 203k Loan Program

The purpose of FHA 203k Renovation Loans is for home buyers to purchase a fixer upper, foreclosure, or a home that is in the perfect neighborhood but that does not suit the needs of their family where they can benefits from updating the home or making major improvements to their home with funding for the rehab. Homeowners can do major room additions with a Renovation Loan. They can add bedrooms, bathrooms, and do a second story addition. Homeowners can also do a complete a gut rehab and customize it the way that suits their needs. It is like having a brand new custom built home.  One of the major benefits with doing a renovations on a current home is creating instant equity. Most homes are valued with square footage. By adding on to an existing home and adding square footage, it will increase the value of the home.

Home buyers can often get deals when buying a fixer upper or foreclosure where the home is not habitable. Most lenders will not lend on a home that is not habitable or in need of major repairs. Buy buying such a home, and fixing it up, you can get instant equity.

If you are a home buyer of a fixer upper or foreclosure or a home that you want to make a dream home or are a homeowner that needs to renovate your home with a FHA 203k Rehab Loan, please contact The Gustan Cho Team at CrossCountry Mortgage at 262-878-1965. You can also text Gustan Cho on his cell at 262-716-8151 for faster response. You can also email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays to take your mortgage inquiry.

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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