What Is A 203k Loan And FHA Guidelines To Qualify
This BLOG On What Is A 203k Loan And FHA Guidelines To Qualify Was UPDATED And PUBLISHED On August 13th, 2019
What Is A 203k Loan?
- The FHA 203k loan is a special mortgage loan program for owner occupant of residential properties
- One to four units properties qualify
- FHA 203k Loans are offered by FHA, the Federal Housing Administration
- The United States Department of Housing and Urban Development, also known as HUD, is the parent of the Federal Housing Administration, FHA
- FHA is not a mortgage lender
- It is a governmental agency that insures home loans to private lenders such as banks, credit unions, mortgage companies, and institutions who are FHA approved to originate and fund loans
In the event borrowers default, FHA will insure lenders against loss in the event borrowers foreclosures.
Purpose Why HUD Created 203k Mortgages
The Federal Housing Administration has created 203k loan programs to motivate and encourage lenders to originate and fund buyers of fixer uppers and foreclosure.
- HUD FHA 203k Rehab Loans enables buyers of fixer uppers and foreclosure purchase home in dire need of rehab in communities and neighborhoods that need revitalization and promote home ownership in these communities
In this article, we will cover and discuss HUD’s 203k Loan And FHA Guidelines To Qualify.
How Does The 203k Loan Program Work
The FHA 203k loan program was created and implemented to encourage home buyers to purchase homes that were in need of repairs or unhabitable.
- The 203k loan is an acquisition and construction loan combined into one loan
- The 203k loan will cover the cost of the home purchase as well as the cost of the needed repairs of the home
- The down payment required is 3.5% of the after improved value of the property
- Minimum credit scores required for 203k loan applicants is 580
- 203k loan lending guidelines are the same as those of general standard FHA guidelines with regards to credit scores, debt to income ratios, prior bankruptcy waiting period, prior foreclosure waiting period, and other FHA guidelines
Non-occupant co-borrowers are allowed with 203k loan programs.
203k Loans For Purchase And Refinance
Home Buyers can get a 203k loan for a home purchase. They can purchase the home and will also have construction funds to rehab home. Homeowners can refinance their current home loans with 203k loan to do renovations on their home. Homeowners with an existing mortgage can obtain a refinance 203k loan where the 203k loan will pay off an existing mortgage and add construction funds all in one loan.
- 203k loan is a great mortgage loan programs for home buyers or homeowners who need to do repairs to their homes
Types Of Renovations Allowed
Here the types of projects that can be done with HUD FHA 203k Renovation Loans:
- kitchen remodeling
- bathroom remodeling
- basement remodeling
- mechanical systems such as heating and air conditioning systems, plumbing electric
- other types of repairs
What Is A 203k Loan And FHA Guidelines And Loan Types
There are two types of 203k loan programs.
There is the FHA 203k streamline loan where no structural changes are allowed but can do general remodeling such as the following:
- any type of remodeling that is non-structural
- The maximum loan amount for an FHA 203k loan is $35,000 which includes reserves
The full standard FHA 203k loan can exceed the $35,000 streamline limit and there is no limit.
- Structural changes can be made
- Repairs covered under the standard FHA 203k loan includes everything that is covered on FHA 203k Streamline Rehab Loans as well as room additions and second-story additions.
Requirements For 203k Loan
Only owner occupant residential properties, 1 to 4 units, will qualify for FHA 203k loan programs.
- Teardowns, as long as the foundations will remain, will qualify
- Homes that are at least one years old will qualify for an FHA 203k loan
- Condominiums can qualify for an FHA 203k loan
- This is only if the condominium complex is HUD-approved
Homes that will require to be moved to another location with a new foundation can qualify for an FHA 203k loans.
What Types Of Repairs Are Allowed?
- Disability access to the home
- Heating, ventilation and air conditioning systems
- Plumbing repairs and complete new plumbing
- Roofing, siding, windows, gutters, soffits, fascia
- Energy conservation systems
- Kitchen and cabinets remodeling
- New appliances such as refrigerators, oven, dishwasher, stove, washer, dryers
- Room additions as well as second-floor additions
- Decks and patios that are permanent fixtures to the home.
- Bathroom renovations
- Attic and basement remodeling
FHA 203k Loan Process To Renovate Home
All repairs need to be completed no later than six months and the general contractor cannot be the homeowner.