Some Important Points About FHA Rehab Loans
September 13, 2023
There are two types of FHA rehab loans. Limited 203(k) is an option for minor home improvements, such as cosmetic changes, repairs, or upgrades, with a maximum repair cost of $35,000. Standard 203(k) is is for more substantial renovations, structural repairs, or the purchase of homes that need significant work. The repair costs can be significantly higher, and it's a more complex process.
These rehabilitation loans are available to both first-time homebuyers and existing homeowners looking to refinance and renovate their homes. Borrowers must meet the FHA's credit and income requirements, as well as other standard loan criteria. The property being financed must meet certain standards, including being a one- to four-unit dwelling that has been completed for at least one year.
Once a borrower identifies a property in need of repairs or renovations they then find a lender approved by the FHA to originate 203(k) loans. A HUD consultant may be required for the standard 203(k) loan to evaluate the scope of work and oversee the project.
The loan amount is based on the property's value after repairs, plus the cost of the renovations.
The borrower makes a down payment (typically 3.5% of the total loan amount) and the loan covers the purchase price and renovation costs.
FHA rehab loans can be used to make various types of repairs, from structural changes to energy efficiency upgrades. Common projects include kitchen and bathroom remodels, roof repairs, plumbing and electrical work, and making the home more energy-efficient. These loans allow buyers to purchase homes in need of repair or upgrade, potentially at a lower price than if they were in perfect condition. And because they're government-backed loans, they allow borrowers with lower credit scores or smaller down payments to qualify.
The drawback is that the FHA loan process can be more complex and time-consuming compared to traditional mortgages. Borrowers must adhere to strict FHA guidelines, including the use of approved contractors and a limited timeline for completing the renovations.
Borrowers considering an FHA rehab loan should work closely with FHA-approved lenders and, if necessary, HUD consultants to ensure they meet all requirements and navigate the process smoothly.
------------------------------
RELATED VIDEOS:
Home Equity Can Secure Your Second Mortgage
Consider the Advantages of Discount Points
FHA Limits are Calculated and Updated Annually
FHA Loan Articles
June 16, 2022It’s a great option to consider if you want to build your dream home on your own land instead of buying someone else’s already-lived-in house. FHA One-Time Close mortgages are also referred to as single-close construction loans--you’ll see these terms used interchangeably.
May 7, 2022The appraisal process is a very important part of buying a home. When you are budgeting and planning for your loan, you may want to set aside some extra funds in case there are corrections required as the result of an appraisal.
April 12, 2022There is a major question some new borrowers have about home loans in general, that also applies to construction loans in particular. If you want to apply for an FHA One-Time Close construction loan, there are certain rules about loan funding that you should know about.
March 30, 2022Once you’ve decided that you’ll be purchasing a home, one of the first questions you need to ask yourself is what kind of mortgage you’ll be using to finance it. When it comes to shopping for a home loan, there are a number of options to consider.
March 3, 2022Savvy homeowners make it a point to monitor interest rates so they can take advantage of a drop. Many choose to refinance their mortgages to capitalize on falling rates and lower their monthly payments and save on interest.
