Many first-time buyers are happy to put in their “sweat equity” but know that renovations take money, too. In addition, certain loan programs won’t allow you to borrow money if the home has too many problems.
Fortunately, lenders recognize the value of sweat equity and have created programs for buyers who wish to purchase a home that requires renovations and repairs. Enter the FHA 203(k) loan program.
Qualifications for 203(k) Loans
You must intend to occupy the home and use it as your primary residence.
- Renovations must be completed within 30 days of closing.
- You may borrow up to $35,000 over the value of the home to use on renovation expenses.
- You must have a minimum 500 credit score.
- A contractor must execute all repairs.
- You will be required to take out Mortgage Insurance.
- A full 203(k) loan requires you to work with a HUD consultant.
- You will be subject to loan limits, which depend on the county where you make your purchase.
You will need a 3.5% down payment for a 580+ credit score and a 10% down payment for a 500+ credit score. Some lenders may require higher credit scores.
How 203(k) Loans are Structured
You may structure an FHA 203(k) loan as either a fixed-rate 15-year mortgage, a fixed-rate 30-year mortgage, or an adjustable-rate mortgage (ARM).
These loans may also provide options for temporary housing while you make home repairs.
What if the home needs more than $35,000 in repairs?
A Standard 203(k) loan allows you to borrow more money for repairs, though contractors must draw a minimum of $5000 for every project. This minimum draw requirement means this loan may not be suitable for some homes that require smaller repairs.
In addition, if you want to make luxury repairs or upgrades that an FHA 203(k) doesn’t cover, other loan programs, such as a Conventional Home Rehab loan, may be right for you instead.
Which home repairs are eligible under the 203(k) loan program?
Borrowers may make the following kinds of repairs:
- Repairs that make a home more functional.
- Repairs that make a home more attractive.
- Repairs that eliminate health and safety hazards.
- Plumbing and sewage repairs.
- Roof, gutter, and downspout repairs.
- Flooring repairs.
- Landscape improvements.
- Energy-efficiency improvements.
- Accessibility improvements.
If you have questions about whether a given repair qualifies, ask Alex Doce during your consultation.
Interested in a 203(k) loan?
Alex Doce can help you determine whether a 203(k) loan is the best option for the property you want to buy and the renovations you want to make. He can also present you with additional options as necessary.
Finally, Alex provides guidance on timelines and steps that you will need to take to complete all the loan requirements, such as completing repairs within 30 days. Ready to get started? Schedule your consultation today!