The 203K loans is a home improvement loan offered by the FHA that is ideal for buyers who want to make major or even minor improvements to their future residence. This type of loan covers the cost of the property and also the cost of repairs or renovation. Down payments are low on 203K loans and often have flexible eligibility criteria. Whether you want to do a major remodel, go green, or just want to update old appliances, the FHA 203K loan could be a great fit for you and your family.
Standard vs Streamlined 203K Loans
The 203K Streamline loan is used for repairs not in excess of $35,000. So most non-structural repairs can be done with this loan. The 203K Standard loan is used for repairs over $35,000 covering structural repairs and other major home renovations. The down payment on both the Standard and Streamlined can be as little as 3.5%, like other FHA loans.
The number of inspections needed and reimbursement schedule will depend on if you have an FHA 203K Streamline or 203K Standard loan.
For the FHA 203K Streamline, you will have one inspection at the end of the work, and two checks. One in the beginning of the work, within 7-10 days from your closing date, and one at the end, after the work and inspection have taken place.
For the FHA 203K Standard, you will be one check at the beginning, 30 days after your closing date, and up to four inspections with further disbursement checks to follow each inspection depending on the findings.
Qualifying for a 203K Loan
Many different types of properties qualify for the FHA 203K loan. One of the main requirements is that the owner must be planning on using the portion of property that is being renovated as their primary residence. Here are the types of properties that quality for this type of loan:
- Single Family Homes
- Multi-Family Homes (2-4 family dwellings)
- Tear-downs, on the condition that part of the foundation remains
- Existing construction that is older than one year
- Condos, as long as they are FHA loan approved
- Mixed-use properties, if you are repairing the home portion of a residential/commercial property
There are many repairs that qualify for the 203K loan:
- Disability access construction
- Flooring and roofing
- Heating, ventilation and air conditioning
- Energy efficiency and conservation
- Kitchen remodeling
- Patios and decks
- Bathroom remodeling
- Upgrading appliances
- Site Grading
- Room additions and second story additions
- Basement and attic refinishing
An important point to note is when putting in your offer; it will be for the purchase price only and will not include the additional money needed for the renovations. The money from the FHA 203K loan can only be used for renovations and not towards the purchase of the home.