FHA 203(k) Rehab Loan
An FHA 203(k) rehab loan is also known as a renovation loan. It allows homebuyers to finance both the finance the purchase or refinance of a home along with a renovation through one mortgage.
To qualify for this loan, a homeowner must meet certain requirements set by the Department of Housing and Urban Development (HUD). The requirements include:
- Finding a qualified lender
- Meeting all lender requirements, including minimum credit score, debt-to-income (DTI) ratios, and proof of income
Once the loan is approved, a date is set for the closing. After closing on the property, a repair escrow account is set up. Repairs must start within thirty days of closing and they must be finished within six months.
Limited K vs. Consultant K loans
With a limited K loan, the contractor typically receives 50% of the total amount agreed on within fifteen days of the closing. The remaining balance is paid after the work is completed. With a consultant K, a HUD 203(k) works with you. They will inspect repairs as they are finished and allow for draw payments based on the work passing inspection.
For both types of loans, after the final disbursement, any remaining funds are applied to the loan’s principal balance.
To get an FHA 203(k) rehab loan, you must borrow at least $5,000. Limits on the maximum amount of money you can borrow vary depending on the state. However, most people purchasing a single-family home should not have trouble falling within these limits.
Interest rates vary depending on rates in general and your credit score. You should expect to pay about 1% higher than you would on a standard loan. Down payments for an FHA 203(k) rehab loan is a minimum of 3.5%.
These loans are designed to help homeowners improve their homes or purchase a home that needs to be updated. They help to create home equity fast by bringing your home up-to-date. In addition to gaining home equity fast, interest rate and down payments are lower than on a traditional loan.