A renovation mortgage provides financing of both the purchase or refinance of a home, and the cost of repairs, upgrades, or updates to the property. Among the most popular and well known of the renovation loans available in the market, the FHA Standard 203(k) Rehabilitation Loan is intended for larger projects and those that include structural repairs.
Total renovation costs must be at least $5000
Use of a 203(k) consultant, an expert involved throughout the process including estimating the cost of repairs and inspecting the work performed, is required
The appraisal repot must provide an “as completed” appraised value that estimates the value of the property after the completion of the renovation work
8 year, 10 year, 15 year
Primary residences only
This program is to be used to renovate an existing property, not build a new construction home. The home must have been completed at least 1 year before the case number assignment date for the new 203(k) loan to qualify. Eligibility will be determined by examining the borrower’s income, assets, liabilities and credit history and score, as well as the market value and condition of the property to be financed.
Minimum repair cost $5,000
Use of a 203(k) consultant is required
Only 1 general contractor may be used
Work must begin within 30 days of the execution of the agreement
Work must be completed within 6 months, or the time period dictated in the agreement, whichever is shorter
The amount borrowed must be within FHA loan limits, which vary by county and are higher in parts of the country where real estate is more expensive
620 minimum FICO score
Projects must only include allowable improvements
Structural alterations and/or additions (with upfront approval)
Upgrade or modernization of central air/ heat, plumbing, and electrical systems
Repair or replace well and/or septic systems
Repair termite or moisture damage
Elimination of health and safety hazards such as asbestos and lead based paint abatement
Basement waterproofing
Remodeling of kitchen and bathrooms
Roofing, gutters and downspouts
Flooring, tiling, and carpeting
Interior and exterior painting
Siding, windows, doors and trim work
Energy conservation improvements
Improvements for disability accessibility
New free-standing appliances
Foundation repair
Addition or replacement of exterior decks, patios, terraces and porches
Permanent hardscape such as driveways, walkways, retaining walls and fences
Improvements that are not permanently attached to the property
Improvements for business or commercial purposes
Landscaping that is not permanent “hardscaping” such as sod, trees, shrubbery or their removal
Luxury items such as swimming pools, hot tubs, tennis courts, gazebos, outdoor kitchens or saunas
This program is ideal for buying a fixer upper, distressed property or out of date home. It can also save the deal should major issues be uncovered during a home inspection. Rather than walk away from a home they love, home buyers can finance the purchase with an FHA 203(k) loan and have the funds needed to cover the cost of the repairs.
Consumers may not be aware that renovation loans, including the FHA Standard 203(k) Renovation Loan, can be used to refinance an existing mortgage. This can be an excellent alternative to a second mortgage or a cash-out refinance when the funds will be used to repair or renovate the subject property.