MORTGAGE LOANS

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203(K) RENOVATION LOAN

An FHA 203(k) Renovation Loan is a government-backed mortgage that combines the costs of a home purchase (or refinance) with the costs of home renovations. The FHA 203(k) Renovation Loan offers homeowners and home buyers an easier way to pay for home remodeling costs. 

While a typical home improvement loan can be complicated and costly – with higher interest rates and shorter repayment terms – a 203(k) Renovation Loan is a single, long-term loan with one application, one approval process, one closing, and one mortgage payment. 

 

203(k) Loan Eligibility

Since 203(k) Loans are backed by the FHA, they follow the same requirements as a standard FHA Loan. Anyone can apply for a 203(k) Loan, provided that you meet all the 203(k) Loan requirements: 

  • Proof of employment history and verifiable income
  • A minimum credit score of 620
  • A debt-to-income ratio (DTI) of 43% or less (see below)
  • A minimum of $5,000 in repair costs 
  • Mortgage and repair costs that fall within FHA Loan limits in your area
  • The home must be your primary residence and the property must meet HUD guidelines
  • Up to 2 year waiting period if you’ve experienced bankruptcy and up to 3 years after a foreclosure

 

203(k) Loan Credit Score Requirements

As with a regular FHA Loan, an FHA 203(k) Home Renovation Loan has a minimum FICO® credit score requirement of 580. However, the higher your credit score, the lower down payment you will be eligible to make. Building your credit score before applying for a 203(k) Loan is good idea. You can get a free copy of your credit report at annualcreditreport.com (this is your credit report and does not include your credit score).

 

203(k) Loan Debt-to-Income (DTI) Requirements

When applying for an FHA insured loan, like a 203(k) Loan, you should strive for a DTI lower than 43% – anything higher might not qualify for a loan approval. Your DTI is your total recurring monthly debts (student loans, credit card payments, etc.), divided by your monthly pre-tax income, expressed as a percentage.  For example, if your rent is $1,000 per month, your car payment is $500 per month, and your monthly credit card payment is $800, your total monthly debt is $2,300. If your gross income is $6,000 per month, then your DTI is roughly 38% (2,300 ÷ 6,000 = 38.3).

 

Mortgage Insurance Premium (MIP) for 203(k) Loans

A Mortgage Insurance Premium (MIP) is required when you finance with an FHA Loan. Your MIPs contribute to the insurance fund the government maintains, should borrowers default on their loans. When you close on your home purchase with an 203(k) Loan, you pay an upfront mortgage insurance premium of 1.75% of the home’s purchase price. A recurring annual mortgage insurance premium of 0.45% to 1.05% of your loan amount (depending on the loan term), is added to your monthly payment.
MIPs are not cancellable.

 

Types of 203(k) Loans

The two types of FHA 203(k) Renovation Loans include the Standard 203(k) and the Limited 203(k) (formerly known as the Streamline 203(k)). For the most part, these loans work the same way and have similar eligibility criteria. But there are some key differences as well: 

  • Limited 203(k) — Repair maximum of $35,000. Home must be habitable while undergoing renovations. No structural changes allowed. Half of payment required when renovations begin, half when they are completed. 
  • Standard 203(k) — No repair price limit. Home can be uninhabitable during renovations. Structural changes allowed. Phased payment schedule.

 

Properties Eligible for 203(k) Loans

As with FHA Loans, 203(k) Loans are only permitted for 1 – 4-unit primary residences. This can include townhouses or condos. In addition to the typical FHA property requirements, an FHA 203(k) Loan requires that the home be at least one year old. FHA 203(k) Loans cannot be used to finance new construction homes. Additionally, the property must meet the FHA Loan limits for your area.

 

203(k) Loan Renovations

Home improvement projects that can be financed with a 203(k) Home Renovation Loan include: 

  • remodeling bathrooms or kitchens
  • replacing your roof or gutters
  • adding bedrooms
  • replacing flooring
  • building a garage
  • finishing a basement
  • upgrading plumbing or heating systems
  • fixing safety hazards
  • adding disability access
  • installing a septic unit
  • adding a porch or deck
  • installing energy-friendly features

Examples of costs not covered by a 203(k) loan include the addition of a pool or outdoor fireplace (existing pools can be repaired), adding satellite dishes, building barbecue pits, paving tennis courts, or making other ‘luxury’ feature additions.

 

How to Apply for a 203(k) Loan

You will need to apply with an FHA 203(k) approved lender and provide the following:

  • Proof of income and employment (pay stubs, tax returns, W-2 statements etc.)
  • Documentation of financial assets (bank statements, etc.)
  • Residential history (previous two years’ worth)
  • Your credit history (it’s also a good idea to check your credit report - not score - here)
  • Identity information like your driver’s license, Social Security card, and date of birth in order to apply
  • Which type of 203(k) Loan you want (you will also need to get an appraisal of the property, and choose an approved contractor for the renovations)

To start your 203(k) Loan application and get preapproved click here, to find a local loan officer click here.

If you have questions and want to speak to someone right away, give us a call at 833-362-0619.

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CONVENTIONAL

CONVENTIONAL LOAN

With low down payment options available

GOVERNMENT

FHA LOAN

Available with down payments as low as 3.5%

GOVERNMENT

VA LOAN

100% financing for eligible Veterans, Reservists and Active Duty Personnel

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USDA LOAN

Available in designated rural and suburban areas

SPECIALTY

JUMBO LOAN

A loan for every lifestyle

SPECIALTY

ALL IN ONE LOAN

Get financial flexibility and pay off your home loan faster

GOVERNMENT

203K RENOVATION LOAN

Turn the house you like into the home you love

CONVENTIONAL

FANNIE MAE HOMEREADY

Flexible funding with down payments as low as 3%

CONVENTIONAL

FREDDIE MAC HOMEPOSSIBLE

More possibilities with down payments as low as 3%

SPECIALTY

HOMEFUNDIT

Gifts from family and friends fund your down payment

CONVENTIONAL

CONVENTIONAL LOAN

With low down payment options available

CONVENTIONAL

FANNIE MAE HOMEREADY

Flexible funding with down payments as low as 3%

CONVENTIONAL

FREDDIE MAC HOMEPOSSIBLE

More possibilities with down payments as low as 3%

GOVERNMENT

FHA LOAN

Available with down payments as low as 3.5%

GOVERNMENT

VA LOAN

100% financing for eligible Veterans, Reservists and Active Duty Personnel

GOVERNMENT

USDA LOAN

Available in designated rural and suburban areas

GOVERNMENT

203K RENOVATION LOAN

Turn the house you like into the home you love

SPECIALTY

JUMBO LOAN

A loan for every lifestyle

SPECIALTY

ALL IN ONE LOAN

Get financial flexibility and pay off your home loan faster

SPECIALTY

HOMEFUNDIT

Gifts from family and friends fund your down payment