August 12, 2019
Why consider a 203k FHA Rehab Loan for buying or refinancing a property that needs repairs? For some the answer is simple. Some house hunters may be looking for a project home to customize.
Others may be home owners who want to refinance to make upgrades and renovations to the home.
The FHA 203k Rehab Loan and Refinance Loan option is a good one to explore. Some are tempted to make home improvements with a credit card rather than a mortgage or refinance loan; this might work for those who already own the home, but it’s important to compare the costs of financing such projects versus putting them on a credit card.
Anyone who is house hunting and finds a property they like but won’t meet building code and/or minimum FHA appraisal standards can use an FHA 203k Rehab loan to buy and improve the property.
There are some caveats to remember in cases where you purchase your fixer-upper. FHA rehab loans do not allow cash back to the borrower, for example.
You can use FHA 203k funds to do repairs, but they must be on the list of approved projects for FHA rehab loan funds. You can’t use 203k loan or refinance loan funds to install luxury items such as a swimming pool.
You are permitted to make upgrades to an existing pool to enhance safety, however.
You likely will not be allowed to act as your own contractor unless you are properly credentialed as a licensed contractor. The lender may not allow borrowers to do their own work in any case, but that is up to the financial institution issuing the loan.
Credit score issues may apply depending on the lender. Some kinds of home loans require higher credit scores; the lender’s minimum standards are at work here. FHA loan rule in HUD 4000.1 do not specify different FICO score requirements for FHA rehab loans, but your lender might.
You may not be inclined to consider buying a fixer-upper loan at first, but if you are in a competitive housing market, the fixer-upper or Rehab Loan option can help you get an advantage.
You aren’t confined to existing construction properties that meet building code standards and other requirements if you use a rehab loan.
It’s true that a rehab loan means more work and a more complicated transaction, but for the right kind of borrower, the FHA 203k Rehab Loan or the refinance version of it can be an excellent way to get into the right home.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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