FHA Construction Loan
203K Loan : FHA Construction Loan Mortgage Programs
203k Mortgage Loans by The FHA
The 203k loan is a specialized renovation or construction loan, backed by the Federal Housing Administration. It is available to both buyers and refinancing households, and combines the traditional "home improvement" loan with a standard FHA mortgage, allowing homeowners to borrow their renovation costs.
FHA Fixer-Upper Loan
Planning to buy a fixer-upper, or make improvements to your existing home? The FHA 203k loan may be your perfect home improvement loan.
In combining your construction loan and your mortgage into a single home loan, the 203k loan program limits your loan closing costs and simplifies the home renovation process.
FHA 203k mortgages are available in all 50 states in loan amounts of up to $625,500.
About FHA Mortgages
The Federal Housing Administration (FHA) is a federal agency which is more than 80 years old. It was formed as part of the National Housing Act of 1934 with the stated mission of making homes affordable.
Prior to the FHA, home buyers were typically required to make down payments of fifty percent or more; and were required to repay loans in full within five years of closing.
The FHA and its loan programs changed all that.
The agency launched a mortgage insurance program through which it would protect the nation's lenders against "bad loans".
In order to receive such insurance, lenders were required to confirm that loans met FHA minimum standards which included verification of employment; credit history reviews; and, satisfactory home appraisals.
These minimum standards came to be known as the FHA mortgage guidelines and, for loans which met guidelines, banks were granted permission to offer loan terms which put home ownership within reach for U.S. buyers.
Today, the FHA loan remains among the most forgiving and favorable of today's home loan programs.
FHA mortgages require down payments of just 3.5 percent; make concessions for borrowers with low credit scores; and provide access to low mortgage rates.
The FHA has insured more than 34 million mortgages since its inception.
What Is The FHA 203k Construction Loan?
The FHA 203k loan is the agency's specialized home construction loan.
Available to both buyers and refinancing households, the 203k loan combines the traditional "home improvement" loan with a standard FHA mortgage, allowing mortgage borrowers to borrow their costs of construction.
The 203k loan comes in two varieties.
The first type of 203k loan is the Streamlined 203k. The Streamlined 203k loan is for less extensive projects and cost are limited to $35,000. The other 203k loan type is the "standard" 203k.
The standard 203k loan is meant for projects requiring structural changes to home including moving walls, replacing plumbing, or anything else which may prohibit you from living in the home while construction is underway.
There are no loan size limits with the standard 203k but there is a $5,000 loan size minimum.
Furthermore, first-time home buyers can use the 203k in conjunction with the FHA HAWK program, which reduces upfront and annual mortgage insurance premiums for FHA-backed homeowners.
The FHA states that there are three ways you can use the program.
1. You can use the FHA 203k loan to purchase a home on a plot of land, then repair it
2. You can use the FHA 203k loan to purchase a home on another plot of land, move it to a new plot of land, then repair it
3. You can use the FHA 203k loan to refinance an existing home, then repair it
All proceeds from the mortgage must be spent on home improvement. You may not use the 203k loan for "cash out" or any other purpose. Furthermore, the 203k mortgage may only be used on single-family homes; or homes of fewer than 4 units.
You may use the FHA 203k to convert a building of more than four units to a home of 4 units or fewer. The program is available for homes which will be owner-occupied only.
What Repairs Does The 203k Loan Allow?
The FHA is broad with the types of repairs permitted with a 203k loan. However, depending on the nature of the repairs, borrowers may be required to use the "standard" 203k home loan as compared to the simpler, faster Streamlined 203k.
The FHA lists several repair types which require the standard 203k:
• Relocation of loan-bearing walls
• Adding new rooms to a home
• Landscaping of a property
• Repairing structural damage to a home
• Total repairs exceeding $35,000
For most other home improvement projects, borrowers should look to the FHA Streamlined 203k . The FHA Streamlined 203k requires less paperwork as compared to a standard 203k and can be a simpler loan to manage.
A partial list of projects well-suited for the Streamlined 203k program include :
• HVAC repair or replacement
• Roof repair or replacement
• Home accessibility improvements for disabled persons
• Minor remodeling, which does not require structural repair
• Basement finishing, which does not require structural repair
• Exterior patio or porch addition, repair or replacement
Borrowers can also use the Streamlined 203k loan for window and siding replacement; interior and exterior painting; and, home weatherization.