What is an FHA 203(k) Loan?

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Financing Eligibility Home Improvement Rehab Loans Limited vs. Standard 203(k)

An FHA 203(k) loan simplifies the home renovation process by allowing you to borrow money for your home purchase and home renovation costs using only one loan. In other words, an FHA 203(k) loan allows you to finance both the purchase of a house, and the cost of turning that house into your dream home, through a single mortgage. FHA 203(k) loans are backed by the federal government, and are a great loan option for those who want to purchase a home and perform upgrades, repairs, remodel or customize to their needs and wants.

While the idea of purchasing a fixer-upper and transforming it into your dream home may seem great in theory, the reality can be harsh once the true cost of a home remodel start sinking in. Unfortunately, many homeowners give up on their dream of designing the perfect home, one renovation at a time, because they automatically assume the project will be unaffordable. That’s where an FHA 203(k) mortgage loan comes in.

If you plan to purchase a fixer-upper or need to make improvements to your existing home, an FHA 203(k) loan may be the perfect rehab loan for you. By folding the construction costs into your home mortgage, an FHA 203(k) loan limits your loan closing costs with just one loan that provides you the necessary funds to buy a home and make the desired repairs or improvements on that home.

An FHA 203(k) loan simplifies the home renovation process. FHA 203(k) loans are backed by the federal government, and are typically given to buyers who want to purchase a home and perform upgrades, repairs, remodel or customize to their needs and wants.

HomeBridge Financial Services has a nationwide team of 203(k) Mortgage Loan Originators who are helping buyers just like you take advantage of the opportunities supported by this program, including:

  • Those interested in purchasing a fixer-upper home that’s in need of upgrades, repairs, or larger renovation projects, even if the home is being sold “as-is”.
  • Those who are purchasing a foreclosed property from banks, housing agencies, and government-sponsored enterprises, as well as short-sale properties.
  • Homeowners who would like to refinance with today’s low rates and get the funds they’ll need to transform their current home into their dream home.

Is an FHA 203(k) Loan Right For Me?

The Federal Housing Administration (FHA) manages the FHA 203(k) loan program, making it possible for buyers to purchase a home with renovation costs rolled into the loan. Since the program was designed to finance renovations and help revitalize neighborhoods, the required down payment may be as low as 3.5 percent of the total cost.

In addition to low down payments, the eligibility terms of an FHA 203(k) loan are more flexible. Generally, in order to be eligible for an FHA 203(k) loan, you must have a credit score of at least 620. Unlike other loans, you do not need to be a first-time homebuyer in order to be eligible. If the renovation project is extensive and living in the home during construction is not possible, you may be able to finance up to six months of mortgage payments if the home is deemed uninhabitable by a HUD Consultant. That’s a great benefit included in the FHA 203(k) loan so you can avoid making double payments on housing while living outside the home.

Although some restrictions and special rules apply, 203(k) loans can be used to purchase and refurbish condos1, two-to-four-unit properties, and mixed-use properties2, in addition to single-family residences and homes in planned unit developments. As a top 203(k) lender in the market, HomeBridge can lend you the maximum amount under a 203(k) loan, which is 96.5 percent of the after-improved value*. For refinancing, the maximum loan amount is 97.75 percent of the after-improved value**. To check the current loan limits by county, visit http://entp.hud.gov or check with your Mortgage Loan Originator for the current limits.

How Does the 203(k) Loan Work?

While the requirements for the borrower for FHA and 203(k) loans are the same, the appraisal process is different. Two values are assigned to the property – an as-is value, and an after-improvement value that takes into account the planned repairs. Your final loan amount is derived from the after-improvement value. The property then closes escrow in as-is condition with no money up front. At this point, the lender typically has a list of planned repairs for the property. The renovation funds are then given in phases and draws – or predetermined, scheduled amounts based on construction progress. In other words, the builder requests draws for each phase of new home construction.

The renovation Mortgage Loan Originators at HomeBridge are committed to providing personalized service to you. From helping you understand the difference between a home construction loan and a home improvement loan to explaining how a 203(k) loan can work for your unique situation, we’re ready to answer any and all questions you may have.

Before shopping for a home, make an appointment with a Mortgage Loan Originator from HomeBridge. We’ll help you determine how much you can afford, and guide you through the application process. Once your purchase contract is accepted and the loan closes, you can begin renovating your future home.

FHA 203(k) Mortgage Loan Limits and Options

The 203(k) loan comes in two forms: The “Standard” Consultant K Loan (which covers all large home renovation projects) and the Limited K loan (which has a $35,000 limit and does not include structural work). The Limited 203(k) loan was specifically created for homes that do not have structural or foundational problems. If your home can be remodeled, repaired, or updated for less than $35,000, the Limited K may be right for you. If your home has structural damage or will require repairs in excess of $35,000, the FHA 203(k) Consultants will work with you and your HomeBridge Mortgage Loan Originator to find the loan that’s right for you.

203(k) Renovation Guidelines

When it comes to home renovation loans, there are particular guidelines to follow. Fortunately, the experts at HomeBridge can answer your specific questions about the types of repairs and renovations you can perform when you finance your home with an FHA 203(k) loan. The eligible repairs differ between Limited 203(k) and “Standard” Consultant K loans, so be sure to talk with a HomeBridge Mortgage Loan Originator before moving forward with your home improvements.

Foundation Financing

If you live in a flood zone, you can secure financing to elevate your home above the flood tables instead of resorting to cashing in your personal savings. By using a HomeBridge rehab loan to raise the foundation of your home, you’ll avoid future water damage, help protect your property, and give yourself peace of mind when disaster strikes. If you’d like to raise the foundation of your home³, contact a HomeBridge representative today for more information.

HomeBridge is the top 203(k) lender in the nation. According to data from the Department of Housing and Urban Development (HUD), HomeBridge ranks No. 1 in the nation for originating 203(k) renovation loans.*** Our Mortgage Loan Originators are ready and eager to discuss details of this helpful home-financing solution with you.

*For FHA 203(k) purchase transactions the maximum loan amount is the lesser of the sales price + renovation costs or 110% of the after improved value, times the maximum loan-to-value (LTV). Loan amount must be within FHA county loan limits.

** For FHA 203(k) refinance transactions the maximum loan amount is the lesser of the property value before renovation + renovation costs or 110% of the after improved value, times the maximum loan-to-value (LTV).  Loan amount must be within FHA county loan limits.

***As of Fiscal Year 2017

The above content is for general informational purposes only and is not provided as professional advice for your specific situation. Please speak to a Mortgage Loan Originator to discuss loan options available.

¹Only interior work is allowed for condos and the maximum loan amount is based on 100% of the after improved value.
²Mixed used properties are allowed providing all square footage guidelines are met.
³Repairing, reconstructing or elevating an existing foundation where the structure will not be demolished or torn down is acceptable, providing that the original structure remains intact.