Why might a homebuyer bypass a new, turn-key home and opt for a faded fixer-upper instead? It might be that they love the distinctive character and quintessential charm of an older home. It could be that they’re eager to put their own stamp on their home by shaping it to fit their needs and tastes. Alternately, they may be determined to get the most bang for their housing buck and recognize that a home in need of renovation can provide an excellent bargain. Whatever your reason, if you’re shopping for a fixer-upper, you’ll want to learn more about FHA 203k renovation loan requirements.
FHA 203k Renovation Loan Requirements
What makes the FHA 203k renovation loan so appealing for people hoping to purchase a fixer-upper? These loans allow borrowers to secure funds for both the purchase of a home and their planned renovations to it with a single loan.
There are two versions of this useful loan. The limited 203k renovation loan provides funding for up to $35,000 in repairs, upgrades, or improvements. Are you planning major structural repairs that will demand a larger budget? The standard 203k renovation loan can be used for renovations ranging from minor projects totaling at least $5,000 to total reconstructions.
Borrower Requirements for the FHA 203k Renovation Loan
Like other FHA loans, the 203k renovation loan is intended to help people who might otherwise struggle to qualify for a loan get the financing they need to become homeowners. As The Mortgage Reports notes, borrowers must meet specific FHA 203k renovation loan requirements to qualify:
- The FHA insists that borrowers must have a credit score of at least 580. Some lenders set this mark at 620.
- Borrowers must be U.S. citizens or lawful permanent residents.
- Borrowers must plan to use the property as their primary residence.
- A down payment of 3.5 percent is needed. This is based on the sum of the home’s purchase price and the estimated project cost.
- A debt-to-income ratio of less than 43 percent is preferred.
- Borrowers may borrow up to the lesser of (a) 110 percent of the property’s expected value after the renovations are completed or (b) the sum of the home price and repair costs. The total loan amount cannot exceed the area’s FHA loan limits.
Property Requirements for the FHA 203k Renovation Loan
As MagnifyMoney indicates, the property must also meet specific requirements:
- The property must be at least one year old and located in the United States.
- It must be a one- to four-unit building of single-family homes and cannot exceed the area’s limits for dwelling units.
- Mixed-use properties with one to four residential units are acceptable as long as at least 51 percent of the property is residential.
- Condos are acceptable as long as they are in an FHA-approved condominium and the building has a maximum of four units. Improvements can only involve the unit’s interior.
- Manufactured homes are acceptable as long as the building’s structural components are unaffected by the renovations.
What can you do with a 203k renovation loan? As NerdWallet reports, renovations funded by this type of loan must be completed by a licensed contractor and approved by an FHA appraiser, but you’ll have a lot of freedom. While the limited version of this loan is focused largely on smaller, cosmetic projects, the standard version can be used for almost any non-luxury project, including major structural alterations. The renovations can boost a home’s attractiveness or functionality, correct health or safety hazards, and rehab or upgrade major structures, features, or systems. Projects that improve energy efficiency or accessibility are also welcomed.
Would you like to learn more about FHA 203k renovation loan requirements? Are you interested in exploring other options for financing renovations? Whether you’re a buyer eager to take the plunge and purchase a fixer-upper or a homeowner intrigued by the idea of refinancing to fund renovations to your property, PrimeLending Twin Cities can help. We don’t just offer advice. We listen carefully to discover your unique situation and your housing goals so that we can offer personalized insights and guidance to help you make your dreams come true. Contact PrimeLending Twin Cities today to learn more about our services.