Buying a fixer-upper and turning it into a beautiful house is the dream of many people. If this is your dream, you’ll be happy to know that there are many financial opportunities to remodel your home and make it your own. These types of loans are called Federal Housing Authority (FHA) 203k loans, and they’re helpful when you realize your dream home may be too expensive for you to finance on your own. Here’s an overview of FHA 203k home improvement loans to help you determine if it's right for you.
Two Types of 203k Loans
There are two kinds of 203k loans: standard and streamlined. With a standard 203k loan, you can make extensive structural repairs to your home including your deck, patio, plumbing, siding, flooring, bathroom, and additions to your home. A standard 203k loan can be up to 110% of the “as improved” value.
Additionally, an FHA-designated consultant is required to write up a rehabilitation work plan before approval. This FHA agent is the same person that reviews the drawings from contractors. Finally, a contingency reserve of 10% to 20% is required depending on the work involved — any loan money not used is used to lower your principal.
The second type of 203k loan is a streamlined. A streamlined 203k loan is when you wish to make cosmetic repairs before moving in. With this type of loan, you can take an additional $35,000 onto your mortgage to improve or update your home. You can make repairs to flooring, paint, weatherization, disability improvements, basement waterproofing, and much more — add-ons that are considered luxury items aren’t permitted with this type of loan.
Qualifying for a 203k Loan
Before you can get a 203k loan for repairs, there are a few things required to be eligible. First of all, your home has to be a one-to-four family house that has been completed for at least a year. The home cannot be co-op, although some condos are eligible. A 203k loan will even allow the total deconstruction of a house as long as the foundation is still in place.
There are additional FHA requirements to get this type of loan. Some of these include:
- The borrower must have a steady employment history for the last two years;
- The borrower must have a valid Social Security number, lawful residence in the United States, and be of legal age to sign a mortgage;
- The borrower must pay a minimum down payment of 3.5%;
- The borrower must have a minimum credit score of 580 for maximum financing.
It’s important that everyone interested in an FHA 203k loan read every requirement to determine if they’re eligible to borrow. The requirements also outline how much of a down payment you need to include based on your credit score. To see a full list of requirements, please visit Zillow.
