I honestly believe that the FHA 203k renovation loan is the best mortgage product available. The loan creates amazing opportunities in ways that other mortgage products cannot. At the same time it is not the perfect loan for everyone in every situation. Here is how I weigh the FHA 203k loan looking at both the pro’s and cons:
· Home renovations can include many things from windows and siding to new kitchens, additional bedrooms, bathrooms, and levels
· It is easier to qualify for this loan. Credit scores as low as 640 and higher DTI’s are eligible
· 3.5% down payment is required. This includes both the purchase price and the renovation costs
· The FHA 203k offers lower interest rates compare to construction loans
· It is possible to gain instant equity on your transaction
· The renovation and purchase costs are bundled together into one low fixed interest rate. You can even include 6 months of mortgage payments if the home is not habitable during construction
· Loan amounts can be based off of 110% of after improved value
· Luxury items are not included. This means no basketball or tennis courts, swimming pools, outdoor barbeque areas, or Jacuzzis.
· Additional fees are inherent. The borrower is required to have mortgage insurance and pay consultant fees, title update fees, and supplemental origination fees.
· There are more moving parts to the FHA 203k compared to a conventional loan. It is very important to find a lender who specializes in the 203k loan.
· The FHA 203k loan process can be a little bit longer, about 45-60 days total. This is again another reason to deal with experienced 203k lenders
With all of these things taken into account, including the longer loan process and increased fees, I still believe that the FHA 203k loan is still a great option to help you customize your house the way you want. The goal for me is helping people get into the home of their dreams and the FHA 203k renovation loan is the best way for many people to do so!