The Federal Housing Administration’s rehab loan product, the FHA 203K loan,was designed for individuals who want to rehabilitate or repair a damaged home so they can live in it as their primary residence.
There are two types of FHA 203(k) mortgages: regular and streamlined (also called “modified”). Regular 203(k)s are for properties that need structural repairs; streamlined are for those that need only non-structural repairs. Either can be used for purchase or refinance.
For a regular 203K loan (purchase), the maximum mortgage amount is based on the lesser of the as-is value of the property plus rehab costs or 110% of the expected value of the property after rehab. This means that you wouldn’t want to buy a $150,000 house if it needed $25,000 in repairs unless you had an extra $10,000 in cash, because the most you could borrow would be $165,000.
The streamlined loan allows home buyers to add a maximum of $35,000 to the purchase price to pay for improvements.
For more information about qualifying for a 203K Home Loan contact one of our knowledgeable loan officers. This loan product can enable you to buy that perfect house and give it the TLC it needs. It can also make it possible for you to make the leap from renting to home ownership, since there might be a fixer-upper out there in your price range when there aren’t any move-in ready homes out there that you can afford.