June 7, 2019
FHA 203(k) mortgages are different than a typical home loan for a new or existing construction home.
These loans allow you to buy and renovate a property that would not necessarily meet FHA loan standards as-is. These loans are often called fixer-upper loans, rehab loans, etc.
FHA rehab loans are available as both new purchase loans and refinance loans, you can use the loan for a property you already own or to buy a fixer-upper to begin working on.
Rehab loans should not be confused with FHA Construction loans, construction-to-permanent mortgages sometimes referred to as FHA One-Time Close mortgages.
The two types of loans can be similar in some respects, including the FHA minimum standards and construction requirements where the approved renovation work is concerned. And yes, the work you do on the home must be on the list of approved projects.
All properties purchased with an FHA mortgage including FHA rehab loans must be brought into compliance with FHA minimum standards plus state and local building codes as a condition of loan approval.
For FHA rehab loans that means you will be required to have an appraisal done by an FHA appraiser; renovations must meet both FHA appraisal requirements and local code/ other standards.
FHA loan rules may technically permit a borrower to act as their own contractor but your lender’s rules may not-you will need to discuss this option with the lender.
Know that FHA loan rules do not allow you to be paid a fee to do your own contracting work, so do not expect to take cash back on the loan for any reason except for legitimate refunds.
Depending on the size of your renovation work you may or may not be able to occupy the home-you may need to make other arrangements that may or may not require hotel stays, etc.
Keep such additional expenses in mind if you should need to live elsewhere during the renovation project.
Talk to a loan officer today about your FHA 203(k) rehab loan options and don’t forget you can refinance an FHA or non-FHA mortgage as a 203(k).
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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