Although 203k renovation mortgage loans are not a new concept, their popularity continues to increase month after month. The 203k program benefits individuals who want to purchase a fixer-upper home or renovate the ones they currently live in. In addition to borrowing the purchase amount of the home, you can also borrow the funds needed for remodeling and renovating an existing structure all with one loan and a single set of closing costs. Features of these loans include:
- 203k loans apply to primary 1 to 4-unit owner-occupied residences
- 3.5% down payment required in order to qualify
- Covers the cost of labor and materials along with other expenses such as fees and permits
- Includes renovations and repairs that will increase the value of the home
You can readily see why these loans have become so popular in recent years. Sometimes, you are faced with the decision of purchasing another home and relocating or staying put and renovating your home. In some cases, remodeling your current home may be the answer rather than going through the hassle of selling your current home and purchasing another.
An FHA 203k loan enables the borrower to include remodeling and renovation costs into a single mortgage with only one loan and a single set of closing costs required. So needless to say, these loans are extremely convenient. However, as with other types of loans, renovation mortgage loans have certain qualification requirements to be aware of which include:
- 1, 2, 3, or 4-unit family dwellings
- Condominiums previously approved for FHA loans
- Current home construction that is a minimum of a year old
- Homes that need to be torn down to the foundation and then re-constructed (a portion of the original foundation must remain)
- Mixed residential/commercial properties (only qualifies if you are remodeling or renovating the residential portion of the property)
- Structures needing new foundations
Additionally, you have the option of applying for a regular or streamlined 203k renovation mortgage loan. Regular 203k loans are approved for homes needing structural repairs whereas streamlined 203k loans apply to homes that do not need such repairs. Furthermore, the streamlined loan has a limit of $35,000.
What Types Of Repairs Qualify?
There are specific FHA guidelines that apply to the types of repairs that qualify for this type of renovation mortgage loan. In most cases, the lender will stipulate what repairs can be made. These repairs usually include:
- Access for disabled individuals
- Bathroom remodeling
- Decks and patios
- Energy conservation
- Flooring, HVAC, plumbing, and roofing repairs
- Kitchen remodeling including new appliances
- New siding
- Property site grading
- Refinishing or remodeling attics or basements
- Structural additions including rooms or second-story
Additionally, renovations must be completed within a 6-month period and you must include the cost of labor and materials, even if you are doing the work yourself.
Additional Requirements And Stipulations
Based on the lenders requirements, the homebuyer or homeowner must provide specific documentation such as:
- A detailed proposal of the work to be performed including estimates of each repair cost
- An appraisal of the home including its future value once the renovations and repairs have been completed
- Credit reports
- Proof of assets
- Proof of income
Although these loans are beneficial to current homeowners who want to remodel or renovate their existing home, they are also beneficial for those individuals who want to purchase a fixer-upper home because they cannot afford a new home.