Do-It-Yourself Remodelers: What Is the Streamlined FHA 203k Rehab Loan?

If you are a homeowner, and want to do a little remodeling or other sort of renovations to your home, and are looking for a way to finance it, then the FHA 203k Rehab loan may be just the thing for your situation. This type of loan was put into place by the Department of Housing and Urban Development, or HUD, to let people borrow money and roll the cost of their home renovations into the loan they get. It is designed to be used as either a way for homeowners to finance home improvements, or to refinance their house while doing renovations to it.

FHA 203k Rehab Loan is Different

The FHA 203 Rehab loan is different than a regular home improvement type loan. Normal loans for this purpose usually have higher interest rates, may have to be paid back in a short time frame, and have other factors that are not positive. This kind of loan provides a better option for both the homeowner and the lender, as it allows the financing of the improvement costs upfront, which is especially beneficial when buying an old home.

The lenders are happy, because the loan is insured by the FHA before the homeowner makes the changes to their house. The homeowner is happy, because the loan can give them up to $35,000 when they apply, at the same time as applying for a new mortgage or refinancing their property.

Loan Requirements

So, how does a homeowner qualify for a FHA 203k Rehab loan? First, you just show your creditworthiness. This is done through your credit score, and if you meet the required income level, debt to income ratio, etc. It isn’t as stringent as some loans, and you may not have to have perfect credit. The requirements are, that any bankruptcies you may have occurred no less than 24 months ago, and any credit account that you have a late payment on, has to have happened at least 2 years ago or later. Plus, you can't use the money on the loan to pay for a timeshare or cooperative type home. The loan can be only be used for single-family homes, townhouses or condos, if no more than 4 units.

Type of Improvements Allowed

You are only allowed to use an FHA 203k Rehab loan for certain kinds of renovations or improvements. For instance, the FHA allows for a minimum repair of $5,000 for minor issues. These repairs may include things like repairing an existing foundation, making a house handicap accessible, making it more energy compliant or “green,” doing landscaping or making it more appealing for the neighborhood, fixing safety hazards, mold damage, floor damage, or changing to the structure of the home façade. The list also includes plumbing, air conditioning, heating units, roof or water drainage issues, and related problems.

Conclusion

All in all the new FHA 203 Rehab Loan is a great type of loan, that benefits the lender and the borrower. It helps get the home improvements done, by rolling the cost into a new mortgage, and makes the lenders happy, because they know the cost is approved for the remodeling before the project starts.