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FHA 203(k) Home Loan
The Federal Housing Administration’s section 203(k) insurance allows buyers to get financing for both the price of the house and the repairs needed and the cost of rehabilitation in a single loan. Instead of going through the complicated process of buying the house, then securing another financing for the repairs or modernization, the FHA 203k program combines both in a single, long-term, fixed-rate that covers both the acquisition and rehabilitation costs.
The idea of purchasing a rundown, dilapidated house to fix it up appeals to a large number of people. People seem to be fascinated with improving or fixing houses, including the idea of flipping houses for a living. Television shows, such as Flip or Flop, glamorize the hard work and the challenges faced when upgrading a home.
It is a good idea to consider the possibility of renovating a home; however, the fact of the matter is that it’s not a quick and easy job that will generate a significant profit in a very short space of time. There are many elements to take into account when deciding which home to purchase, such as the state of the real estate market in the residential suburb as well as the extent and affordability of the improvements.
What is an FHA 203(k) loan?
Are you looking at purchasing a house that needs repairs? If so, do you need to take out a mortgage loan for both the acquisition and the subsequent renovations? Fortunately, the Federal government has made options such as an FHA 203(k) loan available for homeowners to fund the costs associated with these renovations.
In essence, the FHA 203(k) loan is a unique mortgage program designed to make it easy for you to purchase a decaying home that is in need of extensive renovations and repair. This loan is also known as a rehab loan. In other words, the primary purpose of a rehab mortgage is to finance the purchase and rehabilitation or renovation of your property. Should you already own your home and would like to renovate it, you can also apply for an FHA 203(k) loan.
Types of Improvements allowed
It goes without saying that a 203(k) loan allows you to undertake certain renovations in your home. Fortunately, this list covers almost all of the renovations your home is likely to need, including:
- Restoration and modifications of the external and internal structure
- Eradication of existing health and safety hazards
- Modernization and improvements to the home’s functional elements
- Improvements to your home’s energy efficiency capabilities
- Improvement to the external and internal appearance
- The replacement of the existing plumbing system.
- The replacement of the current roofing and gutters, etc.
- Renovation or installation of the floors
- Addition of a landscaped garden
Different types of FHA 203(k) home loans
There are two primary types of FHA 203(k) home loans, each with a different maximum budget as well as several prerequisites:
Standard 203(k) Loan
- Should the renovations to your home require engineering or architectural drawings and inspections, you need to apply for this loan. Furthermore, the budgeted amount of the repairs should be over $35 000. In a nutshell, this type of loan program covers the tearing down and rebuilding your house from the bottom up. The only requirement is that you keep the original house’s foundations.
Limited 203(k) Mortgage
- The limited or streamlined 203(k) loan is designed to finance improvements that do not exceed $35 000. It is also important to note that this mortgage only includes renovations that do not require engineering or architectural drawings. In essence, this loan covers minor repairs, replacement or repair to the roof and gutter system, interior or exterior painting, as well as the addition of a patio.
Additional information regarding an FHA 203(k) loan
Here is some pertinent information that is relevant to the 203(k) loan:
- You can only apply for an FHA 203(k) mortgage through a registered FHA provider.
- A minimum FICO score of 580 is required on all 203k loans.
- Once you have the loan for six months or more, you can refinance it into a conventional home mortgage.
- This program is only available for single home projects and includes family homes, torn-down homes where the foundation still exists, as well as the relocation of your current home to a new address.
- You usually have a maximum of six months to complete the renovations from the time that the loan is approved. However, it is possible to apply for a deadline extension.
For additional information and details about the FHA 203(k) home loan program, please fill out the “Apply Online” form and our FHA 203k Specialist will get back to you or call us at 800-854-4142.
FHA Loan Benefits and Advantages
Compared to conventional loans, FHA carries a lower interest rate. Since HUD insures the loan against future default, it is offered a lower rate.
Minimum requirement for an FHA loan is only 3.5% compared to 5% on conventional loans. The borrower can also get a “gift” from family members to be used as a down payment on the house.
Required minimum credit score for an FHA loan is lower compared to the conventional counterpart. TexasFHA.org will extend an FHA loan to borrowers with middle FICO scores as low as 580.
FHA loans can go as high as 57% debt-to-income (DTI) ratio with an automated underwriting system approval. Conventional loans can only go as high as 45% DTI. What does this mean? This allows the home buyer to purchase a higher sales price home. Lots of times, the higher DTI decides if a borrower qualifies for a home loan or not.
An FHA Loan Specialist Ready To Help You
Our FHA Loan Specialists are always available to help you and answer any questions. You may contact a dedicated FHA Loan Specialist through our website or by calling us directly. You may also chat with us to get a quick answer to your questions.
We make the FHA Loan Process Quick & Easy
Lenders often times will steer their clients away from an FHA loan due to their inexperience with the program. FHA Loans are a great source of funding for our clients. We share our knowledge and experience with FHA loans, making it easier for borrowers.
FHA Approved Lender
The Federal Housing Administration requires lenders offering FHA loans to go through an extensive approval process. We are FHA-approved and designated as a “Full Eagle” FHA mortgage lender offering FHA-insured home loans in Texas.
FHA Loans Help Make Home Ownership Possible For a Wider Range of People.
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Capital Home Mortgage Team
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Company, Inc. NMLS #3277
6131 Orangethorpe Avenue, Ste 500
Buena Park, CA 90620