FHA 203(k) Loan Details

[Benjamin Sulka]

First I want to say that I'm not a lender. The information in this post is based on research that I've done on Google and BiggerPockets to learn about the FHA 203(k) loan. Writing this out helped me internalize the information and I figured I'd share!

Lenders, please correct me if anything is inaccurate. 

FHA 203(k) Loan

What is it?

• -Government backed loan that wraps the purchase price of the home and the cost of renovation into one loan.

Who can use it?

• Can only be used for individuals who intend to use the property as their primary residence. House hackers only basically.

Some Guidelines

• -Complete renovation of the home cannot take more than 6 months
• -Money for renovation is placed in an escrow account and distributed to the contractors as payment as the work is completed
• -Work must be contracted to a licensed handyman or GC

2 Types of 203(k) Loans

Limited 203(k) Loan

• -Home must be livable throughout the renovation period
• -Cannot be used for structural work (adding rooms or landscaping)
• -Repair costs are capped at $35k

Standard 203(k) Loan

• -Used for big ticket items like plumbing, flooring, HVAC, bathroom and kitchen remodels, etc. Gut rehabs.
• -Minimum of $5k has to be borrowed. It’s typically much more than this.
• -No capped repair cost but total value must fall within the FHA mortgage limit
• -Luxurious additions like swimming pools are not covered under this program.

Loan Details

• -Only requires 3.5% down
• -Can have a lower interest rate because the loan is insured by the FHA. This is also dependent on credit score and other factors.
• -Minimum credit score of 580

Cons

• -Lengthy and arduous paperwork process. Can take time to hear back from the FHA.
• -Requires PMI
• -Lending institution can require an origination fee
• -Renovation time is capped at 6 months
• -Requires quotes from licensed contractors

[Paul Welden]

@Benjamin Sulka

MI = Mortgage Insurance (FHA Loans)

PMI = Private Mortgage Insurance (Conventional/Conforming Loans)

MI & PMI essentially do the same thing .... insure the mortgagee in the event of a borrower default.

Hope this helps!