Many people know and are familiar with the FHA loan – a mortgage program designed to cater to families and individuals hoping to qualify for a mortgage even with their less-than-perfect credit scores and not-so-ideal financial situation. This Federal Housing Administration-backed mortgage that opens housing opportunities with as little as 3.5% down payment and less stringent approval guidelines compared to conventional loan is quite popular among first-time homebuyers looking for more affordable means of starting their homeownership journey.
What a lot of people are not aware of, however, is that the FHA offers plenty of other home loan options that accommodate borrowers who have been shut out of the conventional mortgage, part of which is the FHA 203k loan program.
The 203(k) is unique in the sense that it is one of those mortgages that allow the purchase of fixer-upper homes and at the same time finances the necessary improvement projects to bring the property back to mint condition. Moreover, the home’s appraisal value is not based on its current state, but rather on its projected value after due repairs and developments are made.
The FHA 203k is essentially an FHA rehab loan that rolls two loans into one: the first is for the purchase of the property and the second is for the renovation needs. Ultimately, the goal of the 203(k) is to upgrade the home to increase its curb appeal and overall market value.
203k rehabilitation loans are of two types: the Standard 203k and the Streamline 203k loan programs.
The FHA Standard 203k Loan Program
The Standard 203k, also called the Full 203k, covers major renovation projects and anything that has something to do with altering the structure of a property. It can be used to correct landscaping issues, repair driveways and sidewalks, open-up a floor plan, structural basement waterproofing, change the roofing and gutter system, remodel any part of the home, and other improvements that will alter any permanent parts of the real estate.
Since the Standard 203k serves more extensive and substantial repairs, the process is a bit more involved. Borrowers on Standard 203k loans are often advised to hire consultants to help them gain a better understanding of the program and guide them through the process.
The FHA Streamline 203k Loan Program
On the flipside, if the property demands for simpler upgrades that won’t require any permanent modification to the building, the Streamline 203k should be the right fit.
Of the two, the 203k Streamline is less stringent. It also requires a lot less paperwork. This type of the FHA 203k is intended for non-structural remodeling that doesn’t go beyond the $35,000 limit. These improvements may include, but are not limited to, purchase of new appliances, painting the exterior and interior parts of the house, flooring change or repair, and windows/doors replacement.
Applying for a 203k Loan
The FHA 203k loans more or less uphold similar qualification standards and requirements as the traditional FHA loan. Lenders, however, may impose their own set of conditions. Those who are interested in the program are advised to seek the counsel of representatives from experienced and reputable FHA-approved mortgage companies.