January 9, 2024
The FHA 203(k) rehabilitation mortgage is a type of FHA loan you can use to buy and renovate a home, or refinance an existing mortgage and improve the property at the same time.
Buy Or Refi?
Do you want to buy a fixer-upper home with an FHA 203(k)? Do you need to refinance your existing mortgage and renovate?
These are both possible. The options for 203(k) refinancing also include the ability to refinance a non-FHA mortgage into an FHA loan, and you also have the ability to finance certain closing costs.
The FHA 203(k) purchase loan offers borrowers a chance to buy a house that would normally not pass an FHA appraisal.
Under the FHA rehab loan program, you can hire builders to do renovations to bring the house up to code as well as FHA minimum appraisal standards.
Don’t expect to do your own labor with these loans, as typically a lender will require a third party to do the work unless you have experience as a licensed contractor.
Small Scale Or Large Scale Renovation Work Possible
FHA 203(k) loans allow you to select either a full version of the loan with authorization to do major work on load-bearing walls, or a smaller version of the 203(k) loan which still allows renovation but limits the scope of that work to less ambitious projects.
A limited 203(k) is better for homeowners who don’t have extensive work to be done but who still need renovations that a contractor can provide for a reasonable fee.
Finance Closing Costs? Pay Up Front?
You may finance some closing costs for FHA mortgages. Those costs include the FHA up-front mortgage insurance premium, which is a payment some FHA loan applicants decide ahead of time to add to their loan amount. However, financing any closing cost may increase your FHA mortgage payment.
How much it would your monthly payment increase based on each add-on to the loan? This is an important factor to remember when planning how to pay for your new loan.
Things To Remove From Your Renovation List
FHA rehab loan rules in the FHA Lender’s Handbook say you may not use FHA loans to pay for the installation of swimming pools, barbecue pits, or other things the FHA considers to be luxury items.
You may be allowed to use FHA loan funds to repair a pool or barbecue pit. This may be permitted in cases where there’s a safety issue or a similar problem, but these are typically handled on an individual basis.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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