203K Renovation Loans

What is a 203k Home Renovation Loan?

Basically, it's a home loan product which enables you to borrow money for home renovations at the same time you borrow money for a mortgage. It lumps the funds altogether as one mortgage loan. In general, an FHA 203(k) loan allows you to wrap your renovation costs into your mortgage.  That's just one loan and one closing. The amount you borrow is a combination of the price of the home and the estimated price of the repairs, including labor and materials.  The 203K loan is a type of FHA loan that can be used for an entire rehab of a property or just a few select repairs. There are actually 2 types of 203K loans.  One is referred to as a streamline 203K and is for rehab costs that are less than $30,000 and the other is a standard 203K loan.

Frequently asked questions

What is the Difference between a "standard" & "Streamline" Loan

With streamline loans you can now buy a home, and borrow money for repairs and have just one mortgage payment. A streamline 203K refinance eliminates quite a bit of paperwork that is required for a standard 203K mortgage making it a simpler process. An appraiser will give you a list of recommended repairs, and in some cases required repairs. You will get a bid from a HUD contractor and pass it along to your lender. The maximum cash amount to receive is $30,000. You will have a time frame to have the repairs completed for the final appraisal. Once the construction is completed you will be ready for closing. Types of work allowed:

  • Repair/Replacement of roofs, gutters and downspouts.

  • Existing HVAC systems

  • Electrical and Plumbing systems

  • Painting

  • Flooring

  • Appliances

  • Weatherization

  • Basement waterproofing

  • Repair, replace or add exterior decks, patios, porches

  • Window and door replacement and exterior siding

  • Septic and/or well repair or replacement

  • Improvements for accessibility

  • Lead-based paint stabilization or abatement of lead-based paint hazards

Just like a streamline, the standard 203K construction loan allows you to get one loan for both the purchase of a home and the cost of the repairs. The standard 203K rehabilitation loan is for homes that require major renovations.  There is no limit to the amount of cash you’re able to receive for repairs. There is more intensive paperwork requirements for the standard 203K loans. Buyers will not be permitted to occupy the property. However, you are allowed to add up to 6 months of mortgage payments into the loan. You will have a HUD consultant that is assigned to oversea the work that is needed. Types of work allowed:

  • Major rehabilitation, such as the relocation of a load-bearing wall

  • New construction, including room additions

  • Structural repair

  • Repairs requiring detailed drawings or architectural exhibits,  landscaping or similar “site amenity” improvements

  • Any repair requiring a work schedule longer than three (3) months; or rehabilitation activities that require more than two (2) payments per specialized contractor

  • Improvements that require a plan reviewer Improvements that result in work not starting within 30 days after loan closing; or cause the owner to be displaced from the property for more than 30 days during the time the rehabilitation work is being conducted

How does a renovation loan work?

As work is completed, the mortgage lender sends an inspector to review the work. If the work is completed to the scope of the project and to State and Local codes, money is released to pay the contractor. The loan amount depends on the appraisal value and your renovation plans.

Do you need a down payment for a 203k loan?

To qualify for a 203K loan, you'll need to meet the same requirements as any other FHA loan: Your credit score must be at least 620 or 640, depending on the lender. Your maximum debt-to-income ratio can only be 41% to 45%.  You need a down payment (or home equity if you are refinancing) of 3.5% or more.

What is the minimum credit score for a 203k loan?

The Federal Housing Administration, or FHA, requires a credit score of at least 500 to buy a home with an FHA loan. A minimum of 580 is needed to make the minimum down payment of 3.5%. However, many lenders require a score of 620 to 640 to qualify.

How long do you have to live in a house with a FHA loan?

One Year Occupancy Requirement. To meet the owner occupancy rules, the FHA requires that you live in the property as your primary residence for at least 12 months after the loan closes.

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