FHA 203(k) Home Improvement Loan

FHA (Federal Housing Administration) / HUD (Housing and Urban Development)

We will help you get into your dream home because we offer a full array of mortgage products to fit your needs. This section is here to help you understand the FHA 203(k) mortgage product. There are two types of FHA’s 203(k) home improvement loan. The Standard Consultant (k) offers repairs for structural and foundation issues exceeding $35,000 in repairs while the Limited (k) is ideal for homes without foundation or structural issues. The Limited (k) is the most common type of FHA 203(k) Home Improvement loan because it is reserved for those wanting to do cosmetic repairs and updating.

An FHA loan is a mortgage backed and secured by a department of the Federal Government. The loan term FHA stands for Federal Housing Administration. You may have also heard the abbreviation HUD. The abbreviation HUD stands for the Department of Housing and Urban Development. An FHA loan is a great and very popular mortgage product that is available with as little as a 3.5% down payment. You would really want to take advantage of FHA’s ability to lend with your low down payment of 3.5%. It really does not pay to put a large down payment on a home and still obtain FHA financing. There will still be mortgage insurance on an FHA loan even if you were to put more than a 20% down payment. As you can see, you might as well go with the low down payment option when using FHA financing. Unlike conventional loans, you will have to do a refinance to remove the mortgage insurance on an FHA loan.

FHA 203(k) Requirements

The minimum credit score needed in order to obtain an FHA 203(k) loan is 580. There are three credit bureaus that are considered when buying a home. The three credit bureaus are Equifax, Experian, and TransUnion. Each of these bureaus will give their own credit score (risk rating) for you. Sometimes, the credit bureaus will generate the same score only by coincidence, but most of the time you will see three different scores. The highest credit score given by any of the three bureaus is disregarded, the lowest credit score is then disregarded, and you are left with your middle credit score. The middle credit score is what is utilized to determine your eligibility and several other factors while obtaining a home loan.

The FHA 203(k) mortgage product is definitely more time consuming and tedious than other types of loans. There are several additional requirements needing to be met over and above a regular FHA loan. Items like builder or contractor quotes and estimates, the appraisal being structured differently, inspections, etc.

The property types allowed for conventional financing are single family homes, townhomes, villas, duplex(2 units), triplex (3 units), quadplex (4 units), and very few condos. Condos must already be FHA approved in order to obtain FHA financing. You are able to live in one of the multi unit homes (duplex, triplex, or quadplex) and have the rental income to be received on the other units count towards your income to help qualify. Income also needs to be verified while obtaining a conventional mortgage. If you are self-employed, we will review your two year most recent personal and business (if applicable) tax returns. If you are a wage-earner, someone that obtains a W2 at the end of the year, we will review your previous two year tax returns along with a current paystub. Don’t worry – if your previous income is significantly lower than your current income, we can use your higher income just as long as it is justified (increase in pay or a pay raise, promotion, working overtime hours, etc.). If you are retired, we would just need proof of your retirement income (Social Security, pension, etc.). We will also need to verify assets (bank statements) in order to obtain a conventional loan. Again, don’t worry – your funds to close can come as a gift just as long as it comes from an acceptable source (ie no cash money, unverifiable cash, etc.). Gift funds have to be verified but they are allowed.