How Do I Finance A Fixer Upper Home

Dated: 02/06/2020

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So you want to buy a fixer-upper home but don't have the money saved to make the repairs. What do you do? Talk with your agent who is educated on FHA 203(K) Loans. 

FHA 203(K) loans are designed to finance the purchase and renovation of a primary residence. These loans have more lenient qualification requirements vs renovation loans because they are government-insured. These loans work whether you are purchasing a home or refinancing a home. These loans also have rules about how much you can borrow for renovations and what specific renovations you can do.

There are two types of FHA 203(K) Loans:

  1. Streamlined (limited)

  2. Standard

Some improvements are excluded from these types of loans such as swimming pools.

203(K) Limited: provide for up to $35K in renovations but structural renovations are ineligible

203(K) Standard: Borrowers using the 203(K) standard loan must hire a HUD consultant to oversee the renovation and require a minimal of $5K in renovations

However, major structural repairs are eligible unlike the Limited.

Some eligible projects are but this is not a complete list:fixer upper house

  • Install or replace the flooring

  • Install or repair the roof, gutters, and downspouts

  • Eliminate health and safety hazards

  • Rehab the plumbing or sewer systems

  • Improve a home’s functionality or attractiveness

  • Ensure accessibility for a disabled person

  • Improve major aspects of the landscaping

Improvements paid for from a 203(K) Loan must be completed by a licensed contractor and is subject to approval by an FHA appraiser and in some cases a HUD consultant.

Qualification guidelines:

These mortgages have more lenient qualifications than conventional mortgages and are subject to FHA's loan limits

Credit score: You'll need at least a 500 credit score to qualify while some lenders may have a higher limit

Down Payment: If your credit score is 580 or above, the minimum down payment is 3.5%. You'll have to put down 10% if your credit score is between 500-579. Monetary gifts from family and friends are permitted and some assistance may be available through your state home buyer program.

Max Loan Amount: Loan limits for FHA vary depending on where you live. See your area. 

Foreclosure: If you have foreclosed on a property in the last 3 years, you will be prevented from qualifying

To apply for an FHA 203(K) loan you'll need to find an experienced lender that is well versed in this program. 

In closing, FHA 203(K) loans may be a good option for you if you want to purchase and make renovations or if you already own a home and want to make some renovations. There are pro's and con's to these loans so be sure to check with a lender who is knowledgeable and can explain if this is a good option for you.  

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Jennifer Burns

Jennifer was born and raised in Maryland and for the last 21 years has resided in Middletown, MD. Upon finishing her studies at the University of Maryland University College with a Bachelors degree in....

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