What is an FHA 203(k) Renovation Loan?
Purchasing a home in need of major repair or planning a remodel of your existing home can be overwhelming. But securing financing to tackle these projects doesn’t have to be a daunting task.
FHA 203(k) Renovation Loans are designed for people wanting to finance both the mortgage to purchase or refinance a fixer-upper and the funds needed to repair and remodel the property all in a single loan with one application, one closing, and one monthly payment. The loan amount is determined by using the after-improved value; a borrower can receive up to 110% of the after-improved value up to the FHA loan limit.
An FHA 203(k) Renovation Loan can be used to purchase or refinance a primary residence, regardless of property condition. A minimum of $5,000 in eligible repairs is required, from upgrading appliances to scrapping a property and rebuilding (no luxury improvements, like pools, are allowed).
For Smaller Projects: Streamline 203(k) Loans
Academy Mortgage also offers FHA Streamline 203(k) Loans to address mainly cosmetic and minor home improvements ($0–$35,000 in repairs and no structural repairs). These loans are designed with efficiency in mind, and no general contractor and 203(k) consultant involvement is required.
What are the benefits of an FHA 203(k) Renovation Loan?
FHA 203(k) Renovation Loans offer the following features:
- One loan, one closing, and one payment for both the mortgage to purchase or refinance the home and the funds needed for major and minor improvements.
- Improvement funds are held in an interest-earning, FDIC-insured escrow account and disbursed as the work is completed (maximum of five disbursements).
- Competitive long-term fixed or adjustable interest rates.
- Low down payments starting at 3.5% of the property acquisition and repair costs.
- Have the same underwriting guidelines as 203(b) loans.
- Less-strict FHA qualification requirements.
- Can finance up to six months’ mortgage payments into the loan if the home is uninhabitable during rehab.
- Include funds to cover potential expenses and fees.
- May finance the cost to rent another home during renovations.
- Numerous eligible properties, including one- to four-unit single-family dwellings, condominiums, manufactured housing, and mixed-use properties (residential with commercial); owner-occupied only.
- Six months are allotted to complete the work.
Who may benefit from an FHA 203(k) Renovation Loan?
FHA 203(k) Renovation Loans may be of particular interest to the following:
- If you wish to purchase a less-than-perfect home in a great neighborhood, a foreclosure or short sale, or other distressed property.
- If you want to take advantage of excellent prices and historically low interest rates on homes in need of repair or remodeling.
- If you need to expand a home to meet your needs.
- If you desire to invest in improvements that suit your tastes and lifestyle.
- If you would like to eliminate problems with a property before ever moving in.
- If you see fit to purchase a home from one site and move it to a desired location.
- If you choose to demolish an existing structure and rebuild.
- If you want to make improvements to increase your home’s value.
- If you would like to upgrade, add on, or make repairs without tapping into your savings or incurring additional consumer or credit card debt.
- If you are looking to potentially save on your taxes; interest on renovation costs may be tax-deductible (consult a tax professional).
- If you would like to offer property improvements instead of price reductions when selling.
- If you hope to make repairs and improvements that limit or prevent minimum-down financing.
For more information
Contact your Loan Officer today to see if an FHA 203(k) Renovation Loan is the right solution for you. We take pride in delivering value and savings to homebuyers and homeowners looking to make their dream home come true. It would be a pleasure to help.
Visit the FHA website for more information on FHA 203(k) Renovation Loans.