203(k) Renovation Loans

While the idea of purchasing a fixer-upper and transforming it into a dream home may seem like a great concept, the reality can be harsh once buyers realize the true cost of a home remodel. Unfortunately, many homeowners give up on the idea of creating their dream home one renovation at a time because they automatically assume they can’t afford it. That’s where an FHA 203(k) 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 combining a construction loan with your home mortgage, an FHA 203(k) loan limits your loan closing costs because it’s just one loan and 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.

We have a team of specialists 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.

The Federal Housing Administration (FHA) administers the FHA 203(k) loan program, which makes it possible for buyers to purchase a property with the cost of repairs and improvements included in 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. In general to be eligible for an FHA 203(k) loan, you must have a credit score of at least 640. Unlike other loans, you do not need to be a first-time homebuyer in order to be eligible. If the renovation is extensive and you cannot live in the home during construction, up to six months of mortgage payments may be included in the FHA 203(k) loan, so you can avoid making double housing payments while living outside of the home.

Although some restrictions and special rules apply, 203(k) loans can be used to purchase and refurbish condos(1), two-to-four unit properties, and mixed-use properties(2), in addition to single-family residences and homes in planned unit developments. 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 Loan Officer for the current limits.

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.