Understanding the FHA 203k Home Loan

You’re probably already familiar with the FHA home loan program, as this government-backed mortgage is widely popular among first-time home buyers. FHA loans have the reputation of being affordable and easier to qualify for, which is true. The 3.5% down payment and 580 minimum credit score requirements for their home loan program are so much less than the standard for conventional loans.

Getting to Know the FHA 203k 

Unbeknownst to many though, there are plenty of other FHA mortgage programs aside from the home loan. The FHA 203k caters to those who wish to purchase fixer-upper properties or fund home improvement projects on their existing homes.

The 203k, also called the FHA rehab loan, is quite unique because it can combine two mortgages in one. The loan funds the purchase of the fixer-upper and finances the renovations as well, so the property is elevated to a standard that meets FHA requirements. Also, the property is appraised to its projected value – after repairs and upgrades are made, instead of its current worth.

Suffice it to say, the idea behind the 203k is improving the state and appearance of a property to raise its overall market value. Frankly, this is another excellent alternative for those who were denied of a conventional loan.

FHA Rehab Loan Options

There are two types of 203k loans, each catering to a specific type of home improvement pursuit. You have the 203k Standard and the 203k Streamline, which will be discussed in detail below.

1. The FHA Standard 203k Loan Program

The 203k Standard is also called the Full 203k because it is used to fund major renovations – those that affect or alter the physical structure of the home. 

Projects under the Full 203k may include repairing sidewalks and driveways, room extensions, roof replacement, opening-up floor plans, or any improvement that will permanently alter the home and property.

Because this type of 203k program involves extensive and substantial repairs, the projects are more supervised. FHA-appointed personnel inspects the property after the project is completed to assess whether or not it meets the requirements.

Borrowers on 203k Standard usually require the services of a 203k consultant to better understand the stipulations and processes in the program.

2. The FHA Streamline 203k Loan Program

The 203k Streamline also called the Limited 203k, is typically less expensive than the first. This is intended for simpler home upgrades that will not, in any way, modify the building. 

If the home needs a new coat of paint, an appliances upgrade, or some minor remodeling, this type of 203k should be the right fit.

Since the projects that fall under the 203k Streamline are generally non-structural and small-scale, the process is more relaxed and requires less paperwork. 203k Streamline loans cap at $35,000.

Applying for a 203k Loan

The programs under FHA 203 have more or less the same qualification standards as the traditional FHA loan. However, lenders have the final say on the approval and may impose stricter or additional guidelines as they see fit.

If you’re interested in applying for this home rehabilitation mortgage, best seek the advice of FHA-approved lenders specializing in the 203k.