What's a 'Renovation Loan'?
With a standard Federal Housing Administration (FHA), Veterans Administration, or conventional loan, lenders can only approve mortgages up to the house's appraised value and for homes meet the guidelines for "minimum property standards." If a property needs thousands (or tens of thousands) of dollars in renovation work to transform into your dream home, federal rules prohibit you from wrapping that work into your standard loan. You need to have cash… or you can apply for a "renovation loan."
An FHA 203K renovation loan is one that allows you to incorporate the costs of renovating a property into the mortgage. These loans give you the flexibility to finance a property that will not pass an appraisal inspection or is in otherwise less-than-perfect condition. This loan gives you money to buy the home and fix it up, all in one loan, with one settlement. Here are just a few advantages to this versatile program:
- Down payment is only 3.5% and fees are nominal.
- Use this loan to PURCHASE a new home or as a tool to REFINANCE and RENOVATE your existing home!
- Vast array of eligible improvements, including building an addition, finishing the basement, mold remediation, structural repairs, new bathrooms and kitchens, or just minor renovations like fresh paint and carpet.
- Eligible properties include standard residential properties, townhouses, row houses, multiunit residences (up to four units), mixed-use, and even condos.
The 203K program includes parameters that protect your interests throughout the process and limit the uneasiness individuals feel when launching a renovation/rehab project. This program is so flexible, you can finance almost any property using an FHA 203K, as long as the borrower lives in at least one unit on the property as his primary residence.
If you're looking at a property and questioning how you'll afford the renovation work to make it worth your investment…. Give us a call at 410.591.8300 to discuss your project with one of our experienced 203K coaches. The service is free and only takes a few minutes. We would be delighted to assist you.
Do You Need a 'Streamline' of 'Full' FHA 203K
The Department of Housing and Urban Development (HUD) allows two types of 203K: "Streamline" and "Full."
Most individual homebuyers qualify (and prefer) the Streamline 203K. Most buyers find the Streamline process quicker, easier, and cheaper to use. This loan is PERFECT for "light" renovations, where the construction costs total roughly $30,000.00. (Federal rules set the limit at $35,000, but you budget needs to included loan costs and a contingency reserve.)
Other factors that make the Streamline option attractive include:
- You receive 50% of your construction funds upfront at the settlement table. The remainder is paid after project completion.
- You can hire up to three "specialist contractors" for the project (i.e. heating/air condition technicians, flooring installers, painters). This allows you to act as your own general contractor – SAVING YOU MONEY.
- You are not required to hire a 203K Consultant (though it's still a good idea in some cases – talk to your 203K coach about whether you need one).
- You can finance a large assortment of eligible improvements.
- Individual repair jobs do not have to meet a $5,000 in minimum requirement.
- You can purchase or refinance most any residential property: single-family home, townhouse, condo, HUD REO, foreclosure, as-is.
Keep in mind, you cannot use the Streamline 203K loans for structural work.
HUD's "Mortgagee Letter" details the FHA 203(k) Streamline program. We urge all prospective clients read the letter to fully understand the program. Click here to see HUD’s 203K Streamline program description.