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What is a 203k renovation loan?

Wednesday, March 30, 2011 - Article by: Lender411 Member

What is a FHA 203K Loan?

FHA 203K is a loan that will allow home buyers to get financing for the purchase and the renovation of a home with the convenience of one loan and one mortgage payment. Looking at a foreclosure that needs work? FHA 203K loans are the perfect financing tool for a foreclosure purchase. Eliminating the strict property condition guidelines that dog traditional FHA loans, 203K loans allow for an expanded property search and allow you to purchase homes available at a deep discount due to the limited availability of traditional financing.

Purchase & Renovate with One Loan
Current Condition of the Property Not a Problem
Loan Based on After Repair Value

What Does It Take to Qualify?

If you qualify for a traditional FHA loan you probably qualify for a 203K loan as well. While lender guidelines vary, borrowers with credit scores above 600 are potentially eligible. The low 3.5% down payment opens the doors to first time home buyers and borrowers with limited assets. In today's mortgage market borrower credit worthiness is not the only aspect of loan qualification, the property must qualify as well. FHA 203K financing is not contingent on property condition, any issues with the current state of the property can be addressed in the contractor bid and fixed as part of the post-close renovation process. This greatly increases the pool of properties available to potential home buyers.

640+ Credit Score (will vary from lender to lender)
Low Down Payment - 3.5% of the Purchase Price + Renovation Amount
More Flexible on Debt to Income and Assets Needed then Conventional Financing

Do I Need a 203K Streamline or a Full 203K Loan?

The state of the property, the scope of the work and the amount of renovation will determine which product you need. Make sure your lender offers BOTH products as there are plenty of issues that can flip a streamline 203K to a full 203K.

Typically, if your renovation is under $35,000 then you can qualify for a streamline 203K and renovations over $35,000 require a full 203K. However, if your renovation includes structural repair (regardless of renovation amount) you will need a full 203K. Square footage additions, moving of load bearing walls, foundation work and a myriad of other issues can mean you need a full 203K. 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
Full 203K Loans are Over $35,000 in Renovations
ANY Structural Renovations Require a Full 203K Regardless of Renovation Amount

You still have questions right? You should, there's a lot more to this product than I can put in one post. If you want a smooth transaction you need to educate yourself, select the right loan officer at the right lender and put a lot of thought into contractor selection.

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