Dec. 7, 2023
A 203(K) loan is an FHA Loan - It is used to make renovations to a Property by the Owner
This special FHA loan can be used to purchase a property you plan to live in or already live in that needs work. It is a purchase mortgage and a renovation loan all rolled into one. The Federal Housing Administration insures the FHA 203(K) loans and they may have lower qualification requirements.
FHA loans have limits depending on where you live, check your county here County Loan Limits. They determine the amount lent with two methods and they take the method that returns the lower amount. The first way is to multiply the new value of the home by 110% - it must be within the FHA loan limits for your area. The second way is to add the cost of renovating to the current value of your property. Whichever is lower is what FHA takes.
How does an FHA 203(k) loan work?
Depending on what you need to do to your home, there are 2 different types of FHA 203 (K) loans - the Standard and the Limited. Each type has its own rules, how you can use the money and the amounts the owner or buyer c n borrow. Bear in mind the 203(K) loan usually has a higher interest rate due to the increased risk.
Limited 203(K) loans
The limited is just what it is called, limited. You can borrow up to $35,000 and it is used for minor repairs. For instance, the appraiser or home inspector notes some minor repairs. This loan can be used to make these repairs. These loans are for minor changes or repairs. For instance, if your front steps need to be replaced due to cracking, or you need to replace the old dishwasher or stove, these are repairs that would fall under the Limited FHA 203 (K) loan.
Standard 203(k) loans
The Standard loan is for big changes. Moving or removing a wall, doing an addition, or anything that would be over $35,000 or that could affect the structural integrity of the structure. One cool thing about these loans is that you can use this loan to completely demo and reconstruct a property as long as the property keeps the original foundation.
The Standard requires you to hire a consultant (knowledgable in engineering, and architecture) who is FHA pproved. This consultant will oversee the project. There is a searchable database kept by HUD that contains info for these conultants. Check here to search the database.
The HomeStyle loan from Fannie Mae and the CHOICERenovation loan from Freddie Mac are two common conventional renovation loans. They might be a better fit for those with higher credit scores or the desire for improvements the FHA considers luxuries. One of these loans may also be a better choice if the repairs are likely to put the value of the home over the FHA loan limit or if the six-month window seems too restrictive.
If you think you are interested in more info, here are some links to further explore the FHA 203 (K) loan. You can also give me a call: Georgia Weaver, 712-291-0118,
Broker Owner for Weaver LLC, Realtors
607 Lake Ave
Storm Lake, IA 50588
online at WeaverRealtors.com