FHA 203K rehab loans

FHA offers a rehab loan that will allow you to buy a home and fix it up or rehab your current home.  There are two different types of 203K loans – a streamline version that will allow repairs up to about $35,000 or a full 203K .

A streamline 203K allows you to finance repairs for things like new windows, septic, carpet, paint, furnace, air conditioning, etc.  You can't have structural repairs – that requires a full 203K.  A streamline 203K doesn't require a HUD consultant and there are two draws on the money needed for the repairs – one at the time of closing and one when the work is done.  There is a minimum requirement of $5000 in repairs for a 203K.

A full 203K will allow structural repairs like moving walls, new plumbing, remodeling a home.  There is a HUD consultant required that will go over the plans and make sure the project will be completed. There is not a limit on the total cost of the project on a full 203K, but you do have a minimum of $5000 again.  

The maximum loan for both is the FHA loan limit for the area you are buying in.  For most of the Minneapolis St Paul metro area, the limit is $322,000.  The down payment required is 3.5% of the project. For example if you are buying a $100,000 home and you are going to have $20,000 in repairs for a total cost of $120,000, you will need 3.5% of the $120,000.  

FHA does allow for the mortgage to be up to 110% of the after improved value.  There is also a contingency reserve built in to allow for additional costs that do come up during the construction.

For those looking at homes and knowing you may need to remodel or update a home, this can be a great way to finance those updates. Maybe you know you will need to finish a basement or update heating and air conditioning, this is another great way to finance those repairs.  With interest rates as low as they are, you may want to use this to remodel your current home.  All of these are good reasons to consider using a FHA 203K loan on your home purchase.

Leslie Vanderwerf,  NMLS ID#335509, American Mortgage & Equity Consultants, NMLS#150953 - Email - Website

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Currently a Senior Loan Officer at Cross Country Mortgage LLC, it's hard to believe I have been in the mortgage business for more than 25 years and have worked with Sharlene since 2000! I love sharing mortgage insights here each week and helping people finance their homes. Listening helps me find the right program for you!

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