Unlike traditional FHA loans, FHA 203K loans are intended specifically for borrowers looking for homes that need to be fixed or updated. These mortgages are not right for everyone, but with the proper knowledge, individuals can make the right choices for themselves and their families.
FHA 203K Loan Qualifications
While the qualifications may differ from lender to lender, the following are required for our firm:
- 640 middle credit score
- Approved licensed general contractor
- 3.5 percent down payment
- Reserves of 10 percent for repairs
Once a borrower has been approved for a loan, it is important not to make any offers until the licensed general contractor has been approved through our bank. Before gaining our approval, he or she must undergo a credit check. Once the contractor has met our expectations, individuals can borrow up to 110 percent of the price of the home plus the overall expected cost of the repairs. However, borrowers will need to have a reserve equal to 10 percent of the repairs, so they can cover any unexpected expenses.
Which Properties are Approved?
With typical FHA loans, individuals are only limited by price; however, with FHA 203K loans, buyers must be purchasing homes that need improvements or refinancing their own homes, so they can make repairs. In order for a home or property to be approved for this type of FHA loan, the family must live in the house during the renovations or repairs. This may seem like a difficult task, but repairs can be as minor as putting down new flooring or adding a patio or deck to the outside. Even if major problems need to be fixed, working on one or two areas at a time can make it possible to still reside in the home. The following are some approved repairs:
- Room additions
- Kitchen repairs
- Adding new appliances
- Adding disability access
- Some tear downs
- Adding patios and decks
- New flooring
- Placing a home on a new foundation
Purchasing a home is a big deal. There are many types of mortgages for buyers, and FHA loans may not be best for everyone. By doing some research, individuals and families can find loans and prospect mortgages that best suit their needs. In many cases, FHA 203K loans can help borrowers get into the house of their dreams by allowing them to do renovations and repairs on homes that wouldn’t otherwise meet their expectations.