It can often be difficult to find a move-in ready home that has everything you are looking for in your dream home. Buying a fixer-upper can allow you to purchase a property that might not meet all of your needs and turn it into the perfect home. Unfortunately, remodeling or renovating a home can be costly and intimidating. Potential buyers are often scared away from remodeling and renovation projects, but they are often not as difficult as some imagine thanks to programs such as the FHA 203k loan.
An FHA 203k loan is a loan that is backed by the Federal Housing Administration (FHA) that allows you to purchase a home in need of repairs. The cost of the home as well as the renovations are rolled into a single loan. By combining the cost of repairs with a home loan, the process of renovating a home is simplified and much more attractive. Buyers can also save money as closing costs are limited when only one loan is needed.
There are two types of FHA 203k home loans. The standard FHA 203k loan is generally for larger projects while the streamline FHA 203k is used for less complex projects.
FHA Standard 203k –The Standard 203k is for complex renovations that involve structural work, remodeling, or construction that prevents you from occupying the home during renovations. A minimum of $5,000 is required for a standard 203k.
FHA Streamline 203k – The Streamline 203k program works the same as the Standard 203k, however it is designed for smaller improvements that will not exceed $35,000. This option is used for projects such adding new appliances, new roofing, energy conservation improvements, and other non-structural repairs.
FHA Loan programs have grown in popularity given their relaxed credit and low down payment requirements. A credit score of 580 and a down payment of only 3.5 percent are generally the minimum requirements to qualify. If you do not have the minimum down payment requirement on hand, the FHA even allows this to be gifted from family.
FHA Loan Requirements
- Credit Score – Typically, a credit score of 580 or higher will be required to qualify for an FHA loan.
- Income Requirements – A debt-to-income ratio of 43 percent or less is standard although up to 50 percent can be approved.
- Down Payment – A minimum down payment of 3.5 percent of the purchase price is required.
As with the standard FHA loan, two types of mortgage insurance premiums (MIP) must be paid with an FHA 203k loan. The first is an up-front mortgage premium while the other is a recurring monthly premium. The maximum loan amount available for an FHA loan is limited by county. For the FHA 203k loan, this is the combination of the home price and estimated repairs.
Whether you are purchasing a fixer-upper in San Diego, Chula Vista, Point Loma, or Coronado, Finance of America can help you create your dream home with an FHA 203k loan. Contact us today for more information on 203k loans or to begin the qualification process!