What Is A FHA 203k Loan?
The United States Department of Housing and Urban Development, also know as HUD, is the parent of the Federal Housing Administration, also referred as FHA. HUD has an acquisition and construction loan program through FHA known as the FHA 203k Loan program where it enables home buyers who want to purchase a home that is in need of rehab. A home buyer can purchase a foreclosure or REO ( REAL ESTATE OWNED ) property that needs work and have the first mortgage as well as the construction loan all in one mortgage loan and one closing with a minimum of 3.5% down payment on the after improved value of the property. HUD launched the FHA 203k Loan program to promote home ownership in areas where homes need rehabilitation and to promote revitalization of neighborhoods.
Types Of FHA 203k Loans
There are two types of FHA 203k Loan programs. The first type of HUD’s 203k Loan program is the FHA 203k Loan Streamline where the maximum construction loan amount limit is $35,000. The FHA 203k Loan Streamline program is restricted to minor repairs. You cannot do any repairs that require structural changes to the existing home nor any room additions. Home buyers who are qualified for FHA 203k Streamline loans can do minor repairs such as remodeling kitchens, bathrooms, flooring, replacing windows, replacing doors, basement remodeling, attic remodeling, new appliances, siding, roofing, HVAC, and other repairs that do not change the structure of the house.
The second type of FHA 203k Loans is the full standard FHA 203k Loan program which there is no maximum construction loan amount. As long as the home buyer gets an as is as complete appraisal, the maximum loan amount will be based on the after repaired value of the subject property. With the standard FHA 203k loan program, you can do major structural changes, room additions, and a full blown gut rehab if you want to.
What Are Requirements To Qualify For A FHA 203k Loan?
Standard FHA guidelines apply for someone to qualify for a FHA 203k Loan. Minimum credit scores required is 580 FICO for a 3.5% of the after repaired value appraisal value down payment. For example, if you are purchasing a home for $100,000 and you need $100,000 in construction loan and the after repair value is $200,000, 3.5% of the $200,000 is required as the down payment, or $7,000. Minimum credit scores required to qualify for a FHA 203k Loan is 550 FICO. Any home buyer who has credit scores under 580 FICO, a 10% down payment is required.