The Federal Housing Administration’s 203k Rehabilitation Mortgage Insurance Program is an ideal way to save time and money when renovating a home. While the process of buying and fixing up a home can seem daunting and cumbersome, it doesn’t have to be!
The FHA 203k loan allows a homebuyer or homeowner to take out a single loan to cover both the cost of purchasing a property as well as the renovations that the property may need. The 203k loan is beneficial to the lender as well in that the loan is insured, meaning the lender is protected even before the condition and value of the property can be inspected to establish security.
So how do I know if I qualify for this type of loan?
The main difference between qualifying for a standard FHA mortgage and qualifying for an FHA 203k mortgage is you must qualify for the total cost of your home purchase plus planned renovations in order to qualify for the 203k loan.
Otherwise, the qualifications for the 203k loan are the same as for any other FHA loan:
- You must be an owner-occupant of the property to be renovated
- You must have a credit score of 620-640 (this depends on the lender)
- You must have a down payment (or home equity) of at least 3.5%
- Your debt-to-income ratio cannot exceed 41% to 45%
- Your total loan amount cannot exceed the maximum loan limit for your area
In addition, you’ll pay mortgage insurance upfront as a borrower, regardless of the amount of your down payment or home equity. If your down payment is less than 20% or you have a loan-to-value of 78% or more, you’ll be required to pay annual mortgage insurance as well. Fortunately for lenders, this mortgage insurance covers losses if borrowers default, and borrowers will have to pay additional fees.
I’m qualified! Now what?
Since a requirement of the loan is that all the work has to be completed by one contractor (or company), choosing someone who understands how the 203k loan works is vital to the process.
With All Trades as your 203k loan contractor, you’re entrusting a company who understand the loan and knows how to help you maximize your benefits. Learn more about how we can take care of your home’s needs and turn your renovation dreams into a reality!