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Home Renovation Contractor


How Does it Work?

An FHA 203(k) loan – also commonly known as a renovation loan or mortgage rehabilitation loan – is a government-backed loan that can be used to fund both a home’s purchase and renovations under a single mortgage.

What Is An FHA 203(k) Rehab Loan?

A FHA 203(k) Rehab Loan is a loan that allows you to purchase or refinance a home that is in need of repairs and/or renovations, and borrow the money to do those repairs and/or renovations all at the same time. The homeowners are able to combine both real estate costs and incurred renovation expenses into a single mortgage. In other words, if you're thinking of buying a house that needs multiple repairs and significant renovations, you can fold the cost of both into one home loan.

How An FHA 203(k) Loan Works

An FHA 203(k) loan is backed by the Federal Housing Administration (FHA). The loan can take form of a 15- or 30-year fixed-rate mortgage or an adjustable-rate mortgage and the funds obtained through a rehab loan can be applied to expenses associated with both materials and labor. The FHA 203(k) loan is a government-insured mortgage that may come with more flexible qualification terms and requirements than a conventional home loan. The amount you elect to borrow for home improvement and repair efforts is totaled with your other expenses and can be paid off over the course of years through monthly mortgage premiums. Rehab loans can provide a cost-effective way to finance many home improvements, especially large ones. You'll need to meet specific qualifications in order to be approved for a mortgage, including factors such as your income, credit history, credit score and debt-to-income ratio. Keep in mind that any work done under an FHA 203(k) loan must begin within 30 days of closing, and all projects must be wrapped up within 6 months.

What Can An FHA 203(k) Loan Be Used For?

Proceeds from an FHA 203(k) loan and mortgage can be utilized to fund a variety of projects, including, but not limited to:

  • Improving a home’s curb appeal

  • Installing or repairing roofing and flooring

  • Making a home more energy efficient

  • Fixing any health or safety hazards

  • Enhancing a home’s accessibility or functionality

  • Overhauling plumbing and waste systems

  • Redoing landscaping and groundwork

  • Repairing or renovating gutters and downspouts

  • Making changes that improve or modernize a home’s appearance

FHA 203(k) Loan Requirements

In order to qualify for a rehab loan, home buyers or homeowners must meet certain minimum requirements. These are similar to the standard FHA loan requirements. Some of the requirements include:

  • An FHA-approved lender is necessary to apply for an FHA 203(k) loan.

  • Lenders require applicants to possess a minimum credit score 500.

  • FHA 203(k) loan eligibility depends on credit score; those with a score of 580 or above only have to put down 3.5%, while others need 10%.

  • Lenders will calculate your debt-to-income ratios, for an FHA 203(k) which your front-end DTI should not be more than 31% and your back-end DTI no greater than 43%.

  • A 203(k) loan can only be used on the borrower’s primary residence.

  • Only professional contractors can perform the repairs or renovations, not the borrowers themselves.

Should You Consider A Rehab Loan?

Weighing the pros and cons of an FHA 203(k) loan will help you decide if this is the right type of loan for you.

Pros Of FHA 203(k) Loans

  • Low credit score and down payment requirements.

  • Competitive interest rates compared to other loan types

  • Ability to combine home purchase and renovations into a single loan

  • Low down payment and credit score requirements

  • Can provide temporary housing while a home is being repaired

Does An FHA 203(k) Loan Sound Right For You?

An FHA 203(k) loan could provide you with an excellent opportunity to finance both home refinancing and remodeling at an affordable price. Before you begin the application process, compare lenders and FHA project terms to see if this type of financing is right for your fixer-upper. We recommend that you read more about conventional mortgages before making a final decision. This is just one of the many solutions available to those looking to finance an impending home purchase or luxurious upgrades.

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