The Best Loans for Construction and Renovations

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What Is an FHA 203k Loan?

An FHA 203k Loan may as well be called the “loan to help you buy and repair a fixer upper”.
These loans are offered by the Federal Housing Administration (FHA). They were designed to encourage lenders to fund home purchases that seemed “risky”. Also, driving the design of these loans were goals of neighborhood revitalization projects and the want/need for greater homeownership opportunities.
FHA 203k loans are distinctly for homes that are damaged or in need of major repair/rehabilitation. The loan covers the cost of the property as well as the cost of the necessary repairs. The requirement for the down payment is low and eligibility criteria is not too strict. Current homeowners, whose homes are in need of improvement, can also take advantage of these loans.

Which houses qualify?

There are two types of FHA 203k loans. They are regular and streamlined. Regular loans are for homes that need structural repair and streamlined ones are for homes that need non-structural repair.

To qualify, you must live in the home you’re repairing. These kinds of residences qualify:

  • Tear-downs: As long as part of the foundation stays, houses that must be destroyed and rebuilt are eligible.
  •  Existing construction that is at least a year old.
  •  Single-family, two-family, three-family or four-family homes. – Condos that have been approved for FHA loans.
  •  Mixed-use properties: If you are repairing only the home portion, a mixed residential/commercial property may qualify.
  •  Homes needing to be placed on a new foundation.

Which repairs qualify?

The FHA has distinct guidelines for which kinds of repairs qualify for these loans. The lender will let you know what repairs you can make. Some repairs you may make may include:

  • Disability access
  • Heating, ventilation and air conditioning
  • Plumbing
  • Roofing and flooring
  • Energy conservation
  • Kitchen remodeling
  • New appliances
  • Room additions
  • Decks and patios
  • Bathroom remodeling
  • New siding
  • Finishing an attic or basement
  • Site grading

Cost of labor should be included in the loan, even if the homeowner performs the repairs. The repairs need to be completed within six months.

How much does it cost?

The FHA 203k loan will include the price of the home plus the expected cost of the repairs. The homebuyer, must put a percentage of the loan down as a down payment. However, the percentage is usually much lower than that of conventional and other FHA loans.

To apply, the applicant needs to provide proof of income, assets and credit reports. They should also provide a home appraisal that includes how much the home will be worth after the repairs are made. Lastly, the applicant will need to provide a detailed proposal of the work to be done on the home, including an estimated cost of each repair.

An applicant may wish to hire a 203k consultant to prepare the extra paperwork. The consultant’s fees can be included in the loan amount as well.

Things you may need to consider: 

FHA 203k loans are usually attractive options to those who cannot afford a finished home and are willing to dive into the idea of a fixer upper. If you choose this type of route remember, many lenders don’t offer these loans. You must find a lender who is willing and able to help you. Expect to spend a good amount of time on documentation and preparation. These loans can take between 60 and 90 days sometimes. Interest rates can be high due to the risk to the lender, and lastly, home improvements do not guarantee that the home will increase in value. Contact us for more information anytime.

Contact our affiliate for Construction loans in Portland.

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