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What is a 203k Loan

Posted on July 8, 2015 by Ray Williams.

We get a fair amount of calls on daily basis inquiring about a 203k loan.  So I wanted to put a few main components together to help aid in learning about a 203k loan.  A  203k loan is a home mortgage that includes the costs of remodeling/rehabilitation for a home.  It is an FHA loan. It can be used on a purchase or you can refinance into a FHA 203k.  This type of loan is extremely beneficial whether it is for minor rehab or a major renovation to a home.

There are two types of the FHA 203k, one is the streamline and the other is the standard.  The streamline FHA 203k is for renovation/rebab work that is up to $35,000 and does not include structural or landscaping.  The Standard or aka Full FHA 203k is for $35,000 and greater (on up to FHA loan limits), which can include structural and landscaping.  When doing a Full 203k it is required to also hire a HUD consultant.  Do not let this be a discouraging factor, we like to think of them as the “big brother” on the project.  They are there for your protection and will also help facilitate the project and communications with your contractor and lender.

You will need to hire a licensed and insured contractor, with a the streamline you are able to facilitate as a general contractor (GC) but we highly suggest hiring no more than 3 contractors.  For a full you are required to hire a GC, which we even suggest for a streamline.

In order to know what amount you qualify for with a 203k loan you will need to meet with a lender to get pre-approved.  You need to keep in mind that the approximate amount needed to rehab the home will be added to your mortgage.  If you were pre-approved for a purchase price of $200,000 and the home you are looking to purchase is $200,000 and needs rehab work added, then you are exceeding your loan limitations for approval. The important thing is to check with your lender if you know you would like to purchase with a 203k so they can help guide in what your max purchase ability would be using a rehab loan.

If you even have the slightest thought that you would be interested in this type of loan I highly suggest that you talk with your lender and discuss.  Not all lenders can do FHA 203k loans so you need to know ahead of time before you get too far into the pre-approval process and then start looking at homes because the last thing you will want is to find out that you need a FHA 203k and your lender can’t provide, then you are stuck with needing to find a new lender and don’t have much time to be going through the process again!

This is a FHA 203k in a nutshell, f you would like to learn more please contact us. Please note that there is also a Conventional rehab loan available, make sure to ask us about it!

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