So, what is a renovation loan anyway?

An FHA 203k renovation loan is one FHA mortgage loan used to purchase (or refinance) a property and renovate it.  The most common form of the loan is classified as a “streamline” 203k which caps the amount of the renovation at $35k and the scope of the work to non-structural & eligible improvements (eligible repairs below).

Let’s take a home purchase of $100k, for example.  The buyer would like to remodel the kitchen, bath rooms, and flooring throughout the house for a total of $25k in improvements.  The purchase contract is executed with the seller for $100k.  The buyer would then apply for his/her mortgage with a renovation loan specialist (me).  The interest rate is slightly higher than a regular FHA loan, a contingency reserve for potential cost over-runs is added and there are some other minor fees associated with the renovation aspect of the loan.

Purchase price:                                 $100,000

Renovation:                                       $25,000
Contingency reserve & fees:      $2,980
Total acquisition cost:                   $127,980

The borrower's required down payment of 3.5% of the acquisition cost equals $4,480.  Assuming he/she negotiates with the seller to pay all or most of the closing costs, he/she won’t need much more money than that. 

At closing, the seller receives their proceeds, ½ of the renovation is funded to the buyer and contractor jointly, and the renovation begins within 30 days of closing.  The project must be completed within 6 months (generally done much sooner) and the final disbursement is made after a final inspection, title update, and loan review are complete. 

These loans are for owner occupied borrowers with the expectation that the home will remain occupied by the owner for at least one year. FHA may be rolling out an option for investors in the near future. 

Simple, right? 

Call your Allen Tate Realtor and Mortgage Consultant for additional information and assistance!

Eligible Repairs
•       Repair/replacement of roofs, gutter and downspouts
•       Repair/replacement/upgrade of existing HVAC systems
•       Repair/replacement/upgrade of plumbing and electrical systems
•       Repair/replace flooring
•       Painting both interior and exterior
•       Weatherization, including storm windows and doors, insulation, weather stripping, etc.
•       Purchase and installation of appliances, including free-standing ranges, refrigerators, washer/dryers, dishwashers and microwave ovens ($3k max)
•       Accessibility improvement for persons with disabilities
•       Lead based paint stabilization or abatement of lead based paint hazards
•       Repair/replace/add exterior decks, patios, porches
•       Basement finishing and remodeling, which does not involve structural repairs
•       Basement waterproofing
•       Window and door replacements and exterior wall re-siding
•       Septic system and/or well repair or replacement
•       Minor remodeling, such as kitchens, which does not involve structural repairs