FHA Renovation Loans: Transform Your Dream Home

Loan Program Summary & Highlights

FHA Renovation loans, also known as FHA 203(k) loans, are designed for homebuyers and homeowners who want to finance the purchase or refinance of a home along with the costs of renovations or repairs. Backed by the Federal Housing Administration, these loans make it easier to turn a property into the home of your dreams by including renovation costs in your mortgage.

• Finance both the purchase price and renovation costs in a single loan.
• Great for fixing up older properties or properties in need of repairs.
• Available for purchase and refinance transactions.
• Backed by the Federal Housing Administration, offering more flexible qualification requirements.
• Two types of 203(k) loans: Standard (for major renovations) and Limited (for smaller repairs).

What is an FHA Renovation Loan?

FHA Renovation loans combine the cost of buying or refinancing a home with the expenses of renovations or repairs into one convenient mortgage. The program is designed to encourage buyers to invest in older homes or properties that require updates, making them more accessible and affordable.

There are two main types of FHA 203(k) loans:

• Standard 203(k): For major repairs or renovations exceeding $35,000. This loan requires a licensed contractor and detailed repair plans.
• Limited 203(k): For smaller repairs or cosmetic updates up to $35,000, without structural changes.

With competitive interest rates, flexible terms, and FHA-backed security, FHA Renovation loans make it easier to invest in a home that needs a little extra care to become the perfect fit.

General FHA Renovation Loan Guidelines

• Down payment as low as 3.5% of the combined purchase price and renovation costs.
• Minimum FICO score of 580 (with 3.5% down) or 500 (with 10% down).
• Eligible for primary residences only.
• Contractor involvement required for Standard 203(k) loans.
• Renovation work must be completed within six months of loan closing.
• Both purchase and refinance options are available.

Pros of FHA Renovation Loans

• Finance renovations and purchase in one loan: No need for separate financing for home repairs.
• Low down payment: Only 3.5% required for qualified borrowers.
• Accessible for lower credit scores: FHA loans are more lenient than conventional renovation loans.
• Government-backed security: FHA backing provides lenders with reassurance and makes qualifying easier for borrowers.
• Improves property value: Renovations increase the home's market value, benefiting the homeowner.

Cons of FHA Renovation Loans

• Renovation restrictions: Limited to primary residences and must follow FHA guidelines.
• Mortgage insurance: Both upfront and annual mortgage insurance premiums are required, increasing overall costs.
• Strict contractor requirements: Standard 203(k) loans require licensed contractors and detailed project plans.
• Loan limits: FHA loan limits may restrict the total amount available for purchase and renovations.
• Time-sensitive repairs: All work must be completed within six months of closing.

Best Candidates for FHA Renovation Loans

• Buyers of fixer-upper properties: Perfect for those purchasing homes that need repairs or updates.
• Homeowners looking to refinance and renovate: Allows refinancing while covering renovation costs.
• Borrowers with limited upfront funds: Offers low down payment requirements for renovations.
• First-time homebuyers: Ideal for those with limited credit or savings who want to invest in a home that needs work.
• Individuals committed to improving property value: Great for buyers seeking to enhance a home's market potential.

At One Mortgage Company, we’re here to help you find the perfect solution for your home renovation needs. Whether you’re purchasing a new home or refinancing an existing property, an FHA Renovation loan could be your path to creating the perfect space. Contact us today to learn more and start your renovation journey!