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 And FHA Guidelines To Qualify

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

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

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

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
  • siding
  • roofing
  • windows
  • flooring
  • 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

what are the Types Of 203k Loan

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:

  • kitchen
  • bathroom
  • basement
  • attics
  • flooring
  • siding
  • windows
  • roofs
  • painting
  • tiles
  • 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

what are the 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?

What Types Of Repairs Are Allowed?

FHA has set guidelines on the types of repairs that are allowed with an FHA 203k loan.  Lenders may also have overlays on top of FHA on what types of repairs are allowed.
Here are the types of repairs that are allowed with FHA 203k loans:
  • 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

what are the 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.

A 203k loan consultant is normally hired to oversee the paperwork and draw of the 203k loan.  The 203k loan consultant fee is normally added to the overall 203k loan amount.
Mortgage rates on FHA 203k loans are normally higher than the standard FHA loan due to the risk factor to the mortgage lender.  Not all FHA mortgage lenders offer 203k loans.  If you are interested in a 203k loan, please contact me at www.gustancho.com or click here APPLY FOR 203K LOAN NOW  or call us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com.

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