203K Loans – Basics and Guidelines
Over the years I have delved into almost every aspect of FHA 203K loans. Contractor Selection, Draw Process, Different Renovation Loan Products, 203K Realtor Tips, and the Appraisal Process just to name a few.
The devil is in the details on this loan, but to understand the intricacies you need to fully understand the foundation, fundamentals and basics of the FHA renovation process.
What is a 203K Loan?
FHA 203K loans are a low down payment, government insured loan perfect for first time home-buyers and people lacking substantial down payment funds. Unlike traditional FHA loans, property condition issues prevalent on foreclosure & other distressed property sales are NOT an issue!
- Purchase & Renovate with One Loan
- Current Condition of the Property Not a Problem
- Appraisal Based on “AS COMPLETED” Value
What Are the Guidelines & How Do I Qualify?
If you credit qualify for a traditional FHA loan you probably qualify for a 203K renovation loan too. While lender guidelines vary, borrowers with credit scores above 620 are potentially eligible.
The low 3.5% down payment makes the loan a perfect option for first-time home buyers and borrowers with limited assets. In today’s mortgage market your credit is no the only factor for loan qualification, the property must qualify as well.
FHA 203K financing is not dependent on property condition, any issues with the current state of the property can be addressed in the contractor bid and rehabbed as part of the post-close renovation process. This greatly increases the number of properties available to potential home buyers.
- 620+ Credit Score (will vary from lender to lender)
- Low Down Payment – 3.5% of the Purchase Price + Renovation Amount
- Less Restrictive Debt to Income (DTI) and Asset Guidelines than Fannie Mae or Freddie Mac Financing
The condition of the property, the scope of the work and the dollar amount of renovation will determine which version you need. Make sure your lender offers BOTH the STREAMLINE and the CONSULTANT 203K (also known as the standard or full ) products as there are plenty of issues that can flip a streamline to a full 203K.
Typically, if your renovation is under $35,000 then you can qualify for a streamline and renovations over $35,000 require a standard / consultant 203K.
However, if your renovation includes structural repair (regardless of renovation amount) you will need a consultant 203K. Square footage additions, moving of load bearing walls, foundation work and a plethora of other issues can mean you loan is NOT streamline eligible. Get a lender that offers both and a loan officer that knows the differences.
- Streamline 203K Loans are Typically Under $35,000 in Cosmetic Renovations
- Consultant 203K Loans are Over $35,000 in Renovations
- ANY Structural Renovations Require a Consultant Regardless of Renovation Amount
Sill have questions? Unsure if your scope of work is allowable on the Streamline or will it require a Consultant 203K? That’s what we are here for! Call us, we have the answers to your renovation loan questions!
203K loans require knowledge, expertise, experience and connections. They require a specialist, a expert.