Loans to Remodel Your Home

Want to buy a fixer-upper or remodel your home? The Federal Housing Administration’s 203(k) loans are for homeowners that need a loan to improve damaged homes or those in need of renovation.

If you’re purchasing a home, the loan covers the cost of both the property and necessary home improvements. The down payment requirement on FHA Home Loans is currently 3.5 percent of the combined price of the home and improvements — and eligibility criteria are less rigid than those for Conventional Home Loans.

If you already own a property that needs some TLC (tender loving care) you can refinance with a 203(k) loan.

Types of FHA 203(k) Home Loans

There are two types of FHA 203(k):

  • Standard 203(k) loans – these are for homes that need structural repairs and
  • S treamlined 203(k) loans – these have a maximum limit up to $35,000 for homes that need nonstructural repairs.

The following types of residence qualify:

  • Home that are or will be the borrowers primary residence
  • Homes that need to be totally rebuilt
  • Existing construction that is at least a year old.
  • Single-family, two-family, three-family or four-family dwellings.
  • Condos, if they have been approved for FHA loans.
  • Mixed-use properties. If you are repairing only the home portion, a mixed residential/commercial property can qualify.
  • Homes that must be moved to a new foundation.

Which Home Repairs Qualify?

The FHA has specific guidelines about which repairs qualify for 203(k) loans, and the lender will also stipulate what you can do. Eligible improvements include:

  • Disability access
  • Heating, ventilation and air conditioning
  • Plumbing
  • Roofing and flooring
  • Energy conservation
  • Kitchen remodeling
  • New appliances
  • Room additions
  • Decks and patios
  • Bathroom remodeling
  • Room additions or second-story additions
  • New siding
  • Painting
  • Finishing an attic or basement
  • Site grading

Labor costs must be included in the loan, even if the home owner performs their own repairs. The repairs must be started within 30 days and completed within six months.

Qualifying Criteria

The FHA 203(k) loan amount includes the price of the home (or mortgage refinance) plus the expected price of repairs. The home buyer has to provide a percentage of the loan as a down payment.

To apply, the borrower must provide:

  • Proof of income
  • Proof of assets
  • Credit reports
  • A detailed proposal of the work required on the home, including a cost estimate for each repair, which can include a contingency reserve for cost overages
  • A home appraisal, including how much the home will be worth after the improvements are made

Some loan seekers hire a 203(k) consultant to prepare the paperwork. The consultant’s fees can be included in the loan amount.

Other Things to Consider

An FHA 203(k) loan is especially beneficial to buyers who cannot afford a finished home and are willing to take on a fixer-upper. There are many benefits to obtaining a 203(k) Home Loan, specifically that you do not have to use your cash to pay for the repairs or remodel, however be aware that:

  • Many lenders do not offer 203(k) loans. It is a good idea to work with a broker experienced in this type of loan transactions.
  • Expect to spend a lot of time on document preparation and bureaucracy. Having the plans and contractor bids ready prior to loan submission will help in reducing the time taken by the Lender to approve this type of loan.
  • FHA 203(k) closing can take 60-90 days. Lenders have a lot more paperwork to go through which increases processing time.
  • Interest rates tend to be high, due to the risk involved to the lender.

Finally, keep in mind that home improvements cannot guarantee an increased value for your home. Be careful not to pour more money into the house than you could recoup in a sale. It may help to consult a realtor who works in your area to find out if the improvements that you are planning on making will increase the value of your home.


For more information, contact out knowledgeable brokers at Loan People USA.

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