There are significant advantages to securing a 203(k) loan, which is backed by the government agency Federal Housing Administration (FHA), for those looking to purchase a property requiring renovations. Depending on the type of 203(k) loan—streamline or standard—you will not only receive assistance in buying a home, but also the funds to help cover the costs of certain updates, such as a kitchen remodel.
However, there are FHA 203(k) loan requirements you must meet. Here are some key points to keep in mind:
You Have to Provide Proof of Income
In order to be considered for a 203(k) loan, you must be able to provide proof of income. This involves supplying your mortgage lender with certain documentation, including W2 forms, recent bank statements, and tax returns. Obtaining such information helps a lender determine if you would be able to make the monthly payments, until the loan is completely paid off, without issue.
The Property Must Be Your Primary Residence
FHA 203(k) loans are intended to assist those who want to buy a property and live in it full-time. As a result, if you’re looking to purchase and renovate a vacation residence or future rental home, this isn’t the right loan for you. Commercial properties do not qualify, either.
Only Certain Renovations Apply
As explained by the U.S. Department of Housing and Urban Development, not every change you want to make to your home can be paid for through this type of mortgage. Viable reparations include, but are not limited to, “structural alterations and reconstruction,” roof, gutter, and/or downspout replacements, “major landscape work and site improvements,” and “elimination of health and safety hazards.”
The types of renovations you’re looking to make will play a role in what 203(k) loan you can apply for. Streamline 203(k) loans are primarily for non-structural repairs, while standard 203(k) loans typically cover such changes.
The Home Needs at Least $5,000 in Renovations
While this mortgage loan enables you to make a wide range of improvements to your home, the property won’t qualify if it only needs a few thousand dollars’ worth of updates. Instead, it requires at least $5,000 toward renovations. However, there is a maximum amount as well, which is around $35,000.
Considering this type of home financing? Here are some reasons to consider getting an FHA 203(k) rehab loan.
