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203(k) Renovation Loan

Whether refinancing your home in order to renovate it or buy a fixer-upper and use additional funds to increase value, FHA 203(k) home improvement loans are a solid option.

An FHA 203(k) Loan is backed by the federal government and it’s intended for buyers who want to buy a damaged or older house and perform their own repairs using licensed contractors. The lender for this type of home improvement loan gives potential homeowners the money to buy—or refinance—the house, along with money needed for renovations.

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Paying for Construction

203(k) loans are much like a standard FHA loan, but with language specific to renovations. The major difference involves the cost estimated for your home improvement, which are held in an escrow account. As your renovation milestones are met, you can release the necessary funds to your construction crew.

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203(k) Loan Benefits

  • You can use this loan to update, modernize or totally renovate your home.
  • Renovation costs and the first mortgage can be combined with either a fixed-rate or adjustable-rate FHA 203(k) mortgage.
  • The amount of the loan is based on the appraised value of the home including the proposed renovations. 
  • The required down payment can be as low as 3.5%.
  • 203(k) loans can be used for renovations on a new purchase or a refinance.
  • All repairs commence after the 203(k) loan closes. 
  • You can live in the home anytime, barring any municipality restrictions.
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Standard 203(k) Loan

Used by homeowners or home buyers that want to finance a property that needs major renovations, a standard 203(k) loan grants you the ability to acquire one loan for the cost of your mortgage, along with the required repairs. 

A Standard 203(k) Loan covers up to $625,500 for the purchase price and repairs. The standard 203(k) covers major structural repairs, such as foundation repairs, fire damage and flood damage, and significant site improvements, such as room additions.

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Types Of Repairs Allowed

  • Major rehabilitation and/or structural repair
  • Renovations that require detailed architectural drawings
  • Major landscape work and site improvements 
  • Elimination of safety or health hazards
  • New addition construction
  • Site amenity improvements, such as landscaping 
  • Repair work that will require longer than three months or more than two payments per specialized contractor

Streamline 203(k) Loan

When dealing with a property that is in need of modernization or repairs, homeowners often have to take out high interest home improvement loans. A streamline 203k loan allows the borrower a fixed or adjustable rate loan with straightforward terms.

A 203(k) Streamline Loan is best for when repairs come to less than $31,500, making it a better option for non-structural repairs. There will be a timeframe in which all repairs must be completed for your final appraisal, and homeowners can finance up to $35,000 into their mortgage to repair, improve, or upgrade their home.

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Types Of Repairs Allowed

  • Replace or repair existing HVAC systems
  • Replace or repair roofs, including gutters and downspouts
  • Replace or repair plumbing systems
  • Update floor and/or flooring treatments
  • Interior and/or exterior painting
  • Update appliances
  • Waterproof basement
  • Home weatherization
  • Door and/or window replacement
  • Enhancing home accessibility
  • Update home’s electrical wiring
  • Replace/repair home’s exterior
  • Make energy efficient improvements
  • Installing a septic system or a well
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Requirements For A 203(k) Loan

Homeowner or home buyers interested in utilizing the 203(k) loan option for full-scale renovations or specific updates and home improvements, should be able to present two specific requirements to their lender:

Credit Score

The minimum credit score required for a 203(k) loan is 580. Maintaining a healthy credit score makes life easier in general, but especially when trying to obtain a loan—so your credit score should be kept in good standing and routinely monitored.

Down Payment

A healthy credit score also means you could qualify for a low down payment for an FHA 203(k) loan. A lender could ask for as little as 3.5% down—but keep in mind that the more you put down, the better your terms.