FHA Section 203(k) Loan for Portland Remodels

Portland homebuyers have an option when buying a home with repairs and may not have enough at closing to complete the repairs.

This is called the FHA Section 203(k) loan. 

This loan allows borrowers to wrap the cost of repairs and improvements into one mortgage. These loans are popular in markets where inventory is older and many homes are in need of repair. These also work great for foreclosures and short sales. These loans work great for homeowners that don’t want to dip into their equity or an alternative to borrowers to find other sources of financing.  This is a different loan than a construction or rehab loan, both of which are harder to obtain. There are two different 203 loans; the Streamline and the Standard. The Streamline is a faster process limited to home improvements or repairs that total $35,000 or less. The standard 203(k) loan applies to home improvements and repairs costing more than $35,000. The Streamline is the most common and both require a minimum of $5000 to be spent on rehabilitation. Also, the maximum mortgage amount depends on the lesser of the borrower’s approval limit, the FHA maximum mortgage limit for the area or 110% of the appraised value of the improved property.

Eligibility and Restrictions

There are loan restrictions however. These types of loans can be used for refinancing as well as for an initial purchase but they are limited to homeowners that will be occupying the property. Investors for rental properties are not eligible.

Construction or rehabilitation work must begin within 30 days of closing and be completed within six months. The homeowner can be their own contractor if qualified but must not be paid for anything outside of the cost of materials and must also meet FHA qualifications. If you choose to use a professional contractor you must ask if they have done 203(k) programs in the past and understand the payment schedule and requirements. Once the work is completed the homeowner must provide a letter of completion in which a consultant will evaluate the work.

Any major structural repairs must be a standard 203(k) loan and not a streamlined loan. Standard lines allowed just about any type of home improvement including fixing foundations, remodels or a new addition. However, luxury items are not approved for this type of loan such as a swimming pool or outdoor living space. Like most FHA loans, 203(k) require a 3.5% down payment based on the total loan amount and an upfront mortgage insurance payment of 1.75% of the total loan amount, which can be wrapped into the financing. Interest rates on these types of loans can be slightly higher than other FHA loans because there is a greater risk for the lender involved.

For more information on 203(k) FHA home renovation loans feel free to call us at any time. We have reputable lenders that can answer your questions and get you set up on the right program.