The FHA 203k home loan is a renovation loan program that provides funds for both the purchase and renovation of a home. There are two types of an FHA 203k loan. The first is normal 203k, which is given for properties that need structural repairs such as a new roof or a room addition. The second is the Streamlined or Limited 203k, which is given for non-structural repairs such as painting and new appliances. FHA 203k loans interest rates can be either fixed-rate or variable rate loans with repayment terms up to 30 years.
We know that finding the “perfect” home can be difficult. Everything is a trade-off. But some properties are almost perfect – the location is good, and the property has amazing upside, but several improvements need to happen to make it just right. Without repairs, the home you really want might not be suitable for living, and lenders might be very hesitant to fund home loans on a property that is in need of necessary upgrades or repairs just to make it habitable. An FHA 203k home loan makes it possible for you to turn that property into a home your family will love for years to come!
To take advantage of a FHA 203K home loan, you must borrow at least $5,000, and there are maximum limits set by the FHA that vary by location. If you are buying a single-family home that is not extravagant, you’ll more than likely fall within these limits easily. For smaller projects, the Limited FHA 203k or Streamlined 203k allows you to borrow less with an easier process. You can borrow enough to finance 110 percent of the home’s projected value after improvement. Appraisers will review your plans and take the future value of your home into account.
One thing to note, the interest rate on your FHA 203k mortgage will depend upon the current rates as well as your credit score. You should expect to pay a rate that is about one percent higher than you’d pay on a standard loan. You can think of this higher rate as the cost of an easier approval. Plus, lenders may need to do extra work tracking the progress of your project and handling payouts warranting the slight increase in interest payment. At the same time, the loan is insured by the FHA (Federal Housing Administration), so lenders might offer a lower rate than you’d get elsewhere. Foundation Mortgage will walk you through an FHA 203K home loan to help you determine if it is the right loan for you!