What Is An FHA 203K Rehab Loan?
An FHA 203K rehab loan is a type of FHA mortgage loan that will allow you to finance the purchase and renovation of your home. The property is backed by the Federal Housing Administration (FHA), a part of the U.S. Department of Urban Development (HUD). The 203K loan helps borrowers finance the purchase of a home and make necessary renovations or repairs to the property.
What are the differences between Standard 203K and Limited 203K Rehab loans?
The main difference between the Standard 203(k) loan and the Limited 203(k) loan is the scope of the renovations you can finance. The Standard 203(k) loan is intended for more extensive renovations, while the Limited 203(k) loan is for more minor renovations or repairs.
Standard 203K loan:
- It allows for more extensive renovations, such as structural modifications, room additions, and major landscaping projects.
- Requires using a HUD-approved consultant to help you prepare a detailed scope of work and cost estimate.
- It requires you to have a higher credit score and more cash reserves.
Limited 203K loan:
- Allows for smaller renovations or repairs, such as painting, new appliances, and minor repairs
- It does not require the use of a HUD-approved consultant.
- Has less stringent credit and cash reserve requirements
- Both FHA 203(k) loans require a down payment of at least 3.5% of the home’s purchase price, and you must meet specific credit and income requirements. You must also be approved for the FHA’s mortgage insurance program.
How can borrowers use an FHA 203K?
FHA 203(k) loans can be used to finance a variety of home renovations and repairs, including:
- Structural modifications, such as adding a room or making changes to the home’s foundation
- Major landscaping projects, such as installing a pool or building a retaining wall
- Energy-efficient improvements, such as installing new windows or upgrading the heating and cooling systems
- Kitchen and bathroom renovations, such as replacing cabinets and countertops or adding a new shower or tub
- New appliances, such as a refrigerator, stove, or dishwasher
- Floorings, such as carpet, hardwood, or tile
- Painting, both inside and outside the home
- Electrical and plumbing repairs or upgrades
- Minor repairs, such as fixing a leaky roof or repairing drywall
The specific renovations and repairs financed with an FHA 203(k) loan will depend on the type of loan chosen. For example, the Standard 203(k) loan allows for more extensive renovations, while the Limited 203(k) loan is for more minor renovations or repairs. In both cases, the renovations and repairs must be permanent and complete within six months of closing on the loan.
What are the qualifications for an FHA 203K rehab loan?
This post is from my regular blog, so I didn't include all of it. For anyone wanting to read it in its entirety, please see the original article at What Is An FHA 203K Rehab Loan?
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