FHA 203k Loans For Minor and Standard Renovation Projects
In this guide on FHA 203k loans for the acquisition of fixer-uppers and homeowners who need to homeowners who need renovations, we will cover the steps of qualifying for an FHA 203k loan. There are two types of FHA 203k Loans:
- Streamline FHA 203k Loan
- Standard FHA 203k Loan
The Streamlined FHA 203k Loans is a great acquisition and construction FHA Rehab Loan Program but it is for minor rehab. You are only limited to a construction budget of $35,000 with a Streamlined FHA 203k Loan Program and cannot do structural changes and/or room additions.
In this article, we will discuss and cover 203k Loans For Buyers Of Fixer-Uppers.
Streamline Versus Full FHA 203k Loan
Here is what you can do with a Streamline FHA 203k Loan Program:
- The maximum construction budget limited to $35,000
- Cannot do room additions or structural changes
- Can replace appliances such as refrigerators, washers, dryers, and dishwashers
- Can replace and/or fix HVAC systems
- Can replace or refurnish flooring, carpeting, hardwood floors, tiles, walls, painting, millwork, doors, windows, siding, roofing, gutters, soffits, fascia, and other cosmetics
- Can remodel bathroom, kitchens, and rooms
Cannot do outdoor luxury items such as install outdoor kitchens, tennis courts, add jacuzzi tubs, or swimming pools.
Full 203k Loan
With the full 203k Loan, borrowers can do all of the above plus more. Standard 203k Loans are for larger construction projects such as the following:
- All jobs that can be done with Streamlined 203k, homeowners can do it with Standard FHA 203k Loans
- Complete gut rehab projects
- Room additions which include two-story additions or side additions
- Standard FHA 203k Loans allows the homeowners to make structural changes
- They can add on to the existing square footage of the home
- Allows homeowners to build on the existing foundation of the home
- Or relocate the existing home and move it to another location
- Repairs are over $35,000
- There is no construction limit as long as the acquisition and construction loan amount does not exceed the maximum FHA Loan Limits for the area
- Unlike the Streamline FHA 203k Loans where the maximum contractor draw is limited to two, with Standard FHA 203k Loans, HUD 203k Contractor can ask for up to 5 construction draws
HUD FHA Inspector needs to come out to inspect the work completed prior to each draw request from 203k Contractor to make sure that the work has been completed before the cash is released. Click here to apply for a 203k Loan
Types Of Work That Is Permitted With FHA 203k Loan
With FHA 203k loans, you can customize your house the way that suits you. You can do additional work with Standard FHA 203k Loans to customize your home. With the Standard FHA 203k Loans, structural alterations and room additions can be performed. Attached or detached garages can be built. Kitchens, bathrooms, and bedrooms can be remodeled. Alterations to reduce obsolescence as well as reduce maintenance can be done with 203k loans.
What Types of Work Can I Do With FHA 203k Loan?
Complete replacement of electrical, plumbing, and HVAC systems is typical to be done within the scope of work. Replacement and/or installation of wells and/or septic systems are allowed. Many homeowners do roofing, gutters, soffits, and downspouts. Common work is also flooring, hardwood floors, tiles, and carpets. Energy savings systems and/or upgrades are
Can Exterior Work Be Done With FHA 203k Loan?
encouraged. Major landscaping projects for the subject property are allowed. Other projects you can do are accessibility changes and/or enhancements. New non-attached home appliances. Common renovations are exterior and interior improvements. New swimming pools cannot get installed but the existing swimming pool and/or jacuzzi repairs can be done.
How Can FHA 203k Loan Be Used For?
Any home improvement project that is a PERMANENT part of the subject property. Luxury projects such as the addition of a new outdoor kitchen or other amenities are not permitted. Standard 203k Loans require an approved HUD Home Consultant which the borrower chooses from the list of HUD-approved lists of consultants.
Pros And Cons With FHA 203k Loans
Standard 203k Loan can be extremely lucrative for the right home buyer. Many home buyers can buy fixer uppers and do a complete gut rehab and customize their home like a brand new house with structural changes and remodeling as follows:
- Customize the whole structure to the home
- Do second story additions or side additions to the existing home such as adding on an office, extra bedroom, combining rooms, or adding on a master suite with an additional master bath
- Choose the type of flooring they want throughout their homes such as carpeting, hardwood flooring, or tiles
- Repaint the whole house and rooms to the color of their preference
- Complete change windows and add bay windows
- Strip the exterior and add new siding or brick veneer
- Square footage adds value to the existing home
Can You Do a Room Addition With an FHA 203k Loan?
Additional square footage adds value to the home. If the homeowner is planning on doing a room addition with their FHA 203k Loan, that can add substantial value to their property and get instant equity once the addition is complete. For example, if a homeowner is planning on doing a 1,000 square foot room addition and that cost can run up to more than $50,000, the after improved value due to that addition may be an overall increase of the market value of $100,000 depending on the area the property is located.
Negatives Of Renovation Loans
Negatives of Standard FHA 203k Loan can run into cost overruns and stress during the renovation process. Large rehab projects can be stressful. There are times when contractors and homeowners have conflicts. There are potential where the homeowner fires the contractor and needs a new contractor. Choosing the right general contractor who is experienced is extremely critical and very important. Large construction projects take time. Larger rehab projects, especially room additions can take several weeks if not months. Delays can happen especially with building permits.
FHA 203k Loan Mortgage Guidelines
Mortgage rates are higher with FHA 203k Loans due to the added layered risk. Qualification requirements to qualify for FHA 203k Loan are the same as regular FHA Qualification Requirements. There is no manual underwriting allowed with FHA 203k Loan on both Streamlined and Standard FHA 203k Loan Programs. The above are pros and cons with Standard FHA 203k Loan. Get qualify for FHA 203k loan, click here
Frequently Asked Questions (FAQs)
- What are FHA 203k loans?
FHA 203k loans are mortgage products that provide financing for both the purchase of a home and the cost of renovations or repairs. - What types of renovation projects can FHA 203k loans cover?
FHA 203k loans can cover many renovation projects, including minor cosmetic improvements and standard renovations like structural repairs or room additions. - What is the difference between minor and standard renovation projects?
Minor renovation projects typically involve cosmetic updates or smaller repairs, while standard renovation projects may include more extensive work, such as structural repairs or major renovations. - How do FHA 203k loans work for minor renovation projects?
For minor renovation projects, FHA 203k loans provide financing to cover the expenses for the renovations along with the purchase price of the home. - How do FHA 203k loans work for standard renovation projects?
For standard renovation projects, FHA 203k loans provide financing to cover the cost of renovations, including labor and materials, as well as the purchase price of the home. - What are the eligibility requirements for FHA 203k loans?
Eligibility requirements for FHA 203k loans include meeting the minimum credit score and down payment requirements and having a property that meets FHA standards. - Can FHA 203k loans be used for investment properties?
No, FHA 203k loans are only available for owner-occupied properties. - How do I apply for an FHA 203k loan?
To apply for an FHA 203k loan, you’ll need to work with an FHA-approved lender who can assist you through the application procedure and provide information on documentation requirements. - Are there any limitations on the types of renovations that can be done with FHA 203k loans?
While FHA 203k loans cover a wide range of renovation projects, some limitations exist on certain improvements, such as luxury upgrades or renovations that exceed FHA loan limits. - Can I do the renovations myself with an FHA 203k loan?
FHA 203k loans require licensed contractors to perform renovations. However, some minor projects may allow for DIY work with lender approval. - How long does closing on an FHA 203k loan take?
The timeline for closing on an FHA 203k loan can vary depending on factors such as the complexity of the renovations and the lender’s processing times. However, it typically takes longer than a traditional mortgage due to the additional paperwork involved.
The Benefits of Using FHA 203k Loan
The pros definitely outweigh the cons and many homeowners benefit, especially with instant equity, after the completion of their Standard FHA 203k Loans. If you are interested in learning more about both Streamlined and Standard FHA 203k Loans, contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, on evenings, weekends, and holidays to take your call or mortgage inquiry.
