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When You Need To Renovate Your Home

June 10, 2024

FHA Home Loan

There is more than one way to improve your home in 2024 with an FHA loan. Do you want to cash out the equity you have built in the home and use some of the cash for repairs?

In such cases, an FHA cash-out refinance is the right loan. But in other circumstances, a different FHA loan option may be better. How do you choose?

FHA Rehab Loan Options

The FHA 203(k) rehab loan helps those who want to buy or refinance a fixer-upper home or a house that needs improvements to bring it up to code. The FHA 203(k) rehab option is for any qualified borrower, and there is a disaster relief version known as the 203(h) for those who have homes in federal disaster areas.

FHA 203(k) rehab loans feature restrictions you should be aware of before you choose. For example? 

You can’t do your own labor unless you meet FHA and lender requirements (not being a licensed contractor may be an issue for some borrowers), you can’t install luxury items like a swimming pool or barbecue, and you can’t add work you and the lender don’t agree to.

An FHA cash-out loan can pay for such upgrades with no questions asked.

FHA Cash-Out Refinance Options

When you apply for an FHA cash-out refinance loan, you can use the money from that transaction for any purpose agreeable to the lender (there are few restrictions, but it’s good to ask if you aren’t sure), which can include home improvement, renovations, upgrades, etc. 

There are no limitations on using these funds to repair your property. These loans are also effective for home improvements (under the right conditions) because you can ask for an FHA Energy Efficient Mortgage add-on to the loan to pay for approved energy-saving home modifications.


Lender fees and other closing costs will be an important factor in your decision to apply for a 203(k) rehab loan or an FHA cash-out refinance. 

If you have cosmetic fixes, or have a smaller budget for the improvements, it may be wise to ask the lender about the limited 203(k) rehab loan.

The limited FHA 203(k) is (as the name suggests) smaller and has more limitations than the standard version.

You can’t do work on load-bearing walls, for example, with the limited 203(k) rehab loan. But this option is useful because (depending on circumstances) potentially smaller loan payments when the work is finished.

Despite issues related to closing costs and other expenses, a few borrowers will always need the FHA cash-out refinance option instead of the rehab loan. That’s typically because the loan funds can be used to upgrade the house without worrying about whether it’s an “approved project” or not.

In such cases, it is a great idea to discuss your specific goals for the loan, your financial needs associated with the new loan, and do so with multiple lenders. You’ll want each one to present the best FHA loan options for remodeling and renovation. 

If out-of-pocket costs are an issue, tell your loan officer. Some have no trouble paying more out of pocket up front for the loan and that is helpful if you want to reduce the total cost of the refinance loan over the lifetime of the mortgage.

Joe Wallace - Staff Writer

By Joe Wallace

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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