I have written some in depth posts about the FHA 203k home improvement loan in the past, but I wanted to revisit this loan and talk about some of the highlights. With home equity lines of credit very difficult to obtain today and construction loans even more difficult and rare to obtain today, the FHA 203k Loan is an excellent option for home buyers or homeowners today who want to fix up their house or condo and roll the fix costs into their home loan.
You can use FHA 203k Loans to purchase a fixer upper house and roll the costs into the loan, or you can also refinance an existing loan on a house you occupy and roll the fix up costs into the loan. So if you see a house that you would really like to buy but say for example it needs to be painted inside and out, the kitchen needs to be remodeled, the bathroom remodeled and you need new carpet or hardwood floors, you can roll the cost of all of this into your new loan. So for example if you were looking to buy a house for $300,000 purchase price and you wanted to put $30,000 of work into it, we would set you up with a FHA 203k Loan for $289,500 ($300,000 minus the required 3.5% down) + $30,000 for the fix, for a total loan of $319,500. When the loan funds the seller would be paid off and then your $30,000 for fixing up the property would be held in escrow for you to draw from and pay the contractor to fix the house. When the dust settles you would be left with a 30 year fixed rate $319,500 loan and a fully fixed up house!
There are 2 different kinds of FHA 203k Loans:
Streamline FHA 203k
- This is when you do less than $35,000 in repairs (actually less than about $32,000 as there is room for a contingency)
- A streamline 203k is for cosmetic repairs only, not structural. So items like flooring, bathroom remodeling, kitchen remodeling, new windows, etc… are OK.
Standard 203k Loan
- You will use the Standard FHA 203k loan when you are either doing more than $35,000 in repairs and/or you are doing structural work
- Items like foundation repair, adding new bedrooms, adding new walls, and electrical work would be examples of structural work
- With a Standard FHA 203k loan you could literally buy a burnt down house with only the foundation remaining and re-build it using the FHA 203k Loan
Here are some advantages of the FHA 203k Loan:
- Enables you to roll in to fix up costs to your house into a low 30 year fixed rate loan. This then becomes tax deductible and paid off over the life of the loan.
- FHA 203k is really the only option today for getting funds for home improvement (other than cash or credit) unless you have 40%+ equity in your house and perfect credit can get a home equity line
- Enables you to make offers on a house that needs work that other buyers are not going after. This means less competition and possibly the ability to negotiate a better deal.
- Only 3.5% down required and this can be a gift from a relative
- You don’t have to have perfect credit by any means to obtain FHA 203k loans
So give us a call today to apply or a FHA Loan. We are an FHA approved lender. If you have any questions at all don’t hesitate to email or call.
Warm Regards,
Rob Chomentowski
Sr. Loan Officer (and FHA 203k specialist)
858-922-7899
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