An FHA 203(k) loan is a type of government-insured mortgage that allows the borrower to take out one loan for two purposes: home purchase and home renovation. An FHA 203(k) loan is wrapped around rehabilitation or repairs to a home that will become the mortgagor’s primary residence.
An FHA 203(k) is effectively an FHA construction loan.
- An FHA 203(k) loan is a government-backed mortgage that is essentially a construction loan that finances both the purchase and repairs of a home.
- These loans are intended to support homeownership among lower-income households, allowing them to improve and update older properties as their primary residence.
- The FHA offers different varieties of the 203(k) loan depending on the extent of repairs needed.
There are two types of 203(k) loans: limited 203(k) and standard 203(k).3 The loans apply only to individuals and families who intend on making the property their primary residence. This means that real estate investors and houseflippers do not qualify.
A boon to DIYers and home project enthusiasts, an FHA 203(k) loan – also known as a mortgage rehabilitation loan, renovation loan, or Section 203(k) loan – is a type of government loan that can be used to fund both a home’s purchase and renovations under a single mortgage. While Rocket Mortgage does not offer FHA 203(k) loans, read on to find out more about 203(k) loans as well as some other options that may be a better fit for your financial needs.
What Is An FHA 203(k) Rehab Loan?
A 203(k) rehab loan is a form of home financing or refinancing that enables home buyers and homeowners to combine both real estate costs and incurred renovation expenses into a single mortgage. In effect, it allows home buyers who are considering purchasing a fixer-upper that requires multiple repairs and significant rehabilitation efforts to roll the cost of both the property and these projects into one home loan. Keep in mind that a conventional mortgage might be an even better loan option for homeowners looking to make more extravagant updates to their homes.
Streamline 203(k) Loan
A streamlined 203(k) loan, or limited loan, is frequently utilized for homes that require fewer repairs. It provides home buyers or homeowners with a maximum of $35,000 for renovations. No minimum cost requirement is attached, and applications may be simpler to process due to the lower sums borrowed under the terms of this type of loan. Keep in mind that you won’t be able to roll major structural repairs into the sums that you wish to borrow.
Standard 203(k) Loan
On the flip side, a standard 203(k) loan is typically used for larger jobs and covers major structural repairs exceeding $35,000. Renovations must cost a minimum of $5,000 though, and a U.S. Department of Housing and Urban Development (HUD) consultant must be hired to oversee the project and renovation process. Select rules and guidelines must also be followed to ensure compliance with government code.