For many when buying a home, their primary concern other than finding a home is financing for their home. If the homeowner is considering renovations prior to owning the house then they would find themselves concerned with not just financing of the home itself but the renovation project as well. That is where the FHA 203k Loan comes into play, this program allows homebuyers to roll the purchase price of the home and the cost of the renovations into one loan, one closing and one monthly payment. Let’s look at what the 203k loan requirements are and how to get approved.
The FHA 203k Loan can be used to purchase a home or refinance a current one. The home must be the borrower’s primary residence. Other than that requirement, it could be a single family/ standalone home, a PUD (planned unit development), a condo that meets the FHA requirements, an REO (real estate owned) also known as a bank owned home, a duplex or a fourplex.
Anytime something is financed, a consideration of credit and down payment arises. To qualify for the FHA 203k Loan the borrower must have a minimum FICO credit score of 620. As far as down payment is concerned, just as with any FHA loan, the minimum down payment is 3.5% of the total amount financed. The good news is that amount can be fully or partially gifted to the borrower!
The FHA 203k Loan breaks down into two options when it comes to the renovations that qualify—the Limited or the Standard. One way to think about it is, the limited limits you on the total cost of the renovations. When it comes to the Limited, there is a cap of $35,000 allowed for renovation costs, including fees, whereas, the Standard 203k does not have a cap but instead, it has a minimum requirement of $5,000 to be spent on repairs. It is for that reason that structural alterations and additions are reserved for the Standard 203k loan.