An FHA 203(k) rehab loan, also referred to as a renovation loan, enables homebuyers and homeowners to finance both the purchase or refinance along with the renovation of a home through a single mortgage.
IN THIS ARTICLE:
What is a Rehab Loan?
Do I Qualify For a Rehab Loan?
203(K) Rehab Loan Advantages
Do I Qualify for a Rehab Home Loan?
In order to qualify for an FHA 203(k) home loan, a homeowner must meet certain requirements outlined by the Department of Housing and Urban Development (HUD).
The 203(k) loan eligibility requirements include:
- Finding a property that may need some cosmetic repairs or updating
- Finding a qualified lender
- Meeting all lender requirements, including minimum credit scores, debt-to-income ratios, and proof of income
Once your loan is approved, a date will be set for closing. After closing, the following will occur:
- A Repair Escrow Account is set up and the repairs must start within 30 days of closing and completed within six months.
- With a Limited K Loan contractors can receive 50% of the total amount agreed on within 15 days following loan closing and the remaining balance is paid after the work is completed.
- With a Consultant K Loan, a HUD 203(k) consultant will work with you as the owner and they will inspect repairs as they are completed and allow for interim draw payments based on the completed work passing final inspection.
- In both types of 203(k) Loans, after the final disbursement, any remaining funds are
applied to the principal balance of the loan.
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203(k) Rehab Loan Advantages
Rehab loans are designed to help homeowners improve their existing home or buy a home that can benefit from upgrades, repairs, or renovations. A 203(k) rehab loan is a great way to help you create your own home equity fast by bringing your home up to date.
- A convenient way to finance your home improvements without the need for perfect credit, huge down payments, or high interest rates
- Upgrade your home with your style and needs
- Buy a home that’s usually listed at a lower price due to the older existing condition
- Great interest rates for your rehab in one loan
- Come with a low down payment
- A minimum down payment of 3.5% means you won’t deplete your savings trying to come up with a down payment
- Qualifications may be more lenient than for a conventional loan because FHA insures your mortgage
The above content is for general informational purposes only and is not provided as professional advice for your specific situation. Please speak to a Mortgage Loan Originator to discuss loan options available.
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