FHA 203k
Home Renovation Mortgages

The FHA 203(K) mortgage is a uniquely powerful program because it combines the cost of purchasing a home and the cost of home repairs into a single loan. This could provide you opportunities to consider homes you would not normally consider -- including homes that most other buyers are overlooking. This is an effective way to side-step much homebuyer competition in our limited-inventory market.

How much can you receive for rehab, repairs, and renovations? 

The loan amount is limited by the cost to purchase the home plus the cost to complete repairs based on contractor estimates.

It's also limited by an appraiser's estimated "after improved" property value. This is called a "subject to" appraisal because the opinion of value is done "subject to" the proposed work. In other words, the cost of the proposed repairs needs to be validated by an appraiser's estimate of how much value they will add.

 

How does an FHA 203k rehab loan work? That depends on which one of two options you select:

Two versions of the FHA 203k program -- Regular Vs. Streamline

The regular FHA 203(k) program provides funds for properties that require significant structural repairs. These homes would not qualify for traditional financing. There is NO MAXIMUM amount for work to be completed, but the total loan amount is subject to the normal FHA loan limits for each county.

 

The Streamline FHA 203(K) is for properties that only require cosmetic updates. This includes new floors, new windows, new countertops, new cabinets, etc. Streamline FHA 203(K) loans have a maximum improvement/renovation amount of $35,000. The main advantage of the Streamline program is it removes some of the "red tape" and procedural work. For example, the Streamline program does not require a Consultant to oversee/approve work as required in the regular program. 

How Does the FHA 203k Program Work? Give Me an Easy Illustration!

Okay! Here's an example:

(+) $70,000 purchase price (the price in your sales contract)

(+) $30,000 cost of repairs
(=) $100,000 "total purchase price" (the price on your loan application)

The minimum down payment on FHA 203k is 3.5% down.

Assuming the home appraised at $100,000 or more, the minimum down payment would be $3,500.

The loan provides the funds needed for repairs. Those funds are set aside in a special escrow account. As the repairs are completed, money is taken from the escrow account and sent to the contractor. The concept is pretty simple!

 

The Bottom Line for Most Buyers and Homeowners

 

In today's competitive market, it can be difficult to find a home that meets your family's needs and fits your vision. One way to bypass most homebuyer competition is to consider homes that others are overlooking. That could involve homes that currently aren't perfect, that need repairs, that can't be financed with traditional loans, or need significant updating. A home that needs work is often one of the few discount opportunities in today's market.

If you can imagine the home being perfect for your family -- if only it could be repaired, renovated, or improved -- it could be possible with the FHA 203k program. With this program, you can finance the cost of the proposed improvements

 

If you already own a home, this type of program can also make it possible for you to improve, update, renovate, or repair it.

You don't have to figure this out by yourself! We're here to help! If you're searching for a home within the next three months, start out by completing the information at Get Started Online.

Important Tips with FHA 203k Financing

  1. If you're interested in this program, get in touch with us early in your home search. This will help you plan and prepare before you find a home and negotiate on it. This type of loan involves additional effort and costs, and you'll want to have a good grasp before you think about offer prices.
     

  2. If you could find the same home in a condition that ALREADY matches your proposed work, it would obviously be easier to simply purchase that home. Therefore, if you're willing to engage in the extra time, effort, and cost of this project for a home that is NOT up to that standard, the total price you're paying, including costs, should be LESS than what it would cost to purchase a similar already-updated home.
     

  3. Before you make an offer, ask your Realtor to find you some comparable sales with a condition similar to what you envision after the improvements. Those should help you get an idea of the after-improved value before you make your offer. The total price -- including cost of repairs -- should provide you some level of discount in comparison to that value. Otherwise, why not pay that price for a home that's already in your envisioned condition?
     

  4. This is a very specialized type of financing, and you should work with a team like ours, which is experienced with this program. Some of our team members work almost exclusively on renovation loans. 

 

I'm a Nerd! Tell me more details about FHA 203k!

 

If you're interested in this concept, you should get in touch with us to help you plan and understand the details. If you're targeting a home purchase in the next three months, use the Get Started Online section as a first step. If you're beyond three months away, just use contact form below.

 

However, for nerdy people (like myself) that want some more details to ponder as you're completing one of the above-referenced forms, here are some key highlights --

  • Available on 1-4 unit properties (single families, duplex, triplexes, and 4-families)

  • On a Streamline 203k loan, the Consultant is not required

  • On Regular 203k special Consultant works with you and the contractor to develop a work plan, inspect work as it's completed, and approves disbursements from your escrow account

  • On Regular 203k, bids are analyzed by a Consultant who provides a work "write up"

  • The timeline to receive an appraisal is longer before you must obtain bids for the work to be completed and provide to an appraiser

  • The purchase timeline on the Regular 203k is slightly longer than the Streamline 203k because the Consultant (on regular 203k) must provide the write up prior to the appraisal. (Start from the beginning if you forgot what this means)

  • You can partially reduce the timeline with our VIP FasTrak Program.

  • The bids and "write up" are provided to the appraiser and included in the appraisal

  • Property must be used for primary residence (you must plan to live in the property at least 1 year)

  • This program may be used as a purchase or a refinance, but refinances involve extra rules on how long you need to own the property prior to repairs.

  • Repairs must be minimum of $5,000 (for practical purposes, usually used with repairs over $15,000)

  • All renovation work must start within 30 days of closing date, cannot be stopped for more than 30 days, and must be completed by the established timeline. Never over 6 months to complete repairs.

  • Most investors require one licensed general contractor to complete the work (specialized subcontractors can work under the general contractor).

  • Special rules apply to properties acquired by inheritance, properties acquired in the last twelve months (if a refinance), or properties the seller is flipping (selling within 12 months of their purchase)

  • Utilities must be in working order OR included within the repairs to be completed

  • The loan also finances a "contingency reserve" which sets aside a certain amount of cushion in case the work ends up costing more than anticipated

  • If the house is uninhabited during completion of the work (up to 6 months), the mortgage payment for that time may also be financed in the loan amount

  • All issues affecting health, safety, habitability, and energy conservation must be completed FIRST, prior to completion of other improvements

  • Work must be properly permitted 

  • All work must be completed within 6 months. Properties that cannot be occupied within six months are ineligible

  • The total mortgage amount is subject to FHA loan limits (see below)

Identity of Interest on FHA 203k

  • The work cannot be completed by the borrower or anyone related to the borrower even if licensed. The materials cannot be provided or paid directly by the borrower.

  • Both borrower and consultant must sign an Identity of Interest Certification saying there is no relationship between them and any party to the transaction.  

  • However, a sale between family members IS allowed

  • If these requirements are a problem, check out our HomeStyle Renovation program, which is generally more flexible with Identity of Interest.

Types of improvements allowed with FHA 203k mortgages:

  • Update/remodel bath, kitchen, or other rooms

  • Window and door replacement

  • Convert a single family into a multi-unit OR a multi-unit into a single family

  • Resolve any health/safety issues (mold, lead-based paint, foundation issues, plumbing problems, ect.)

  • Improving handicap accessibility

  • Installation of new well or septic system (must be completed prior to other items)

  • Interior or exterior painting

  • Major landscaping that adds permanent value or corrects any safety issue

  • Major structural alterations (add a room or garage, finish basement, finish attic, etc.)

  • Repair flooring/carpeting

  • Replace appliances

  • Repair/replace roofing, gutters, downspouts, soffits, facia, ect.

  • Repair or upgrade plumbing, heating, or cooling systems

  • Limited repairs to existing swimming pool

  • Weatherization or improvements to energy consumption such as windows/doors, insulation, weather stripping

  • Complete tear downs/rebuilds (at least some of existing foundation must remain in place)

Ineligible improvements on FHA 203k:

Neither luxury items nor improvements that do not become fixtures of the property (except for common appliances) are eligible to be financed. Some examples include:

  • Alterations that allow for commercial use

  • Exterior hot tubs, saunas or new pools

  • Fire pits or outdoor barbecues 

  • Photo murals

  • Television or satellite systems

  • Tennis courts

Finance mortgage payments during work period on FHA 203k

  • Maximum six payments

  • ONLY for the period that the property is uninhabitable due to the renovation work

  • The number of payments can NOT exceed the established time period for work completion

  • For multi-unit properties, if one or more of the units is occupied, you can only finance a portion of the payment relative to the units that are NOT habitable during the work

FHA Maximum Loan Limits by County  (If outside WI, click here).

 

This loan limits apply to both regular FHA loans and FHA 203k.

Curious why some counties allow higher than the standard county limit ($294,515 for a single family) in WI?

Waukesha, Milwaukee, Ozaukee Counties (part of Greater Milwaukee) have a wide range of sale prices but involve many sales at higher values. Kenosha is considered part of the wider Chicago market, and Pierce is considered part of the Minneapolis/St. Paul market, although they're within Wisconsin's borders. 

Let's Work Together!

You'll receive at least three major benefits when you work with us...

  1. As you can see, we're very experienced with FHA 203k financing. In fact, when you work with us, part of the team that handles your loan works almost exclusively with renovation mortgages. 
     

  2. Whether or not you work with a renovation program, our commitment is to help you explore, compare, and contrast options that are best suited for you. We'll make it very easy to understand. You are our priority.
     

  3. On top of that, we can give you a distinct advantage for getting your offer accepted. When the seller's Realtor sees you're working with us, it can make a real difference. Many Realtors refer clients to us because of our strong reputation in the real estate community.

    Our VIP FasTrak program can give you an actual head start. With this program, you can offer more confidence, more reliability, and a faster closing to the seller. This will set you apart from 95% of other buyers who are much earlier in the mortgage process.

If you're within three months from searching for a home, your first step is to complete the information at Get Started Online.

Frequently Asked Questions about the FHA 203k Mortgage Program

Q. Can you refinance to an FHA 203k loan?

A. Yes. If you already own a home, it may be possible to refinance it with an FHA 203k loan to finance the cost of repairs. It will be appraised in light of the proposed work just like an FHA 203k purchase mortgage.

Q. What credit score do you need to get a 203k loan?

A. As of April 2018, we require a minimum credit score of 640 for FHA 203k.

Q. Can you use a 203k loan to buy a foreclosure?

A. Yes, many of our FHA 203k customers purchase foreclosures. The foreclosures include HUD-foreclosures and other types of foreclosures.

Q. What are FHA 203k requirements?

A. In addition to the special repair requirements mentioned above, the borrower eligibility requirements are similar to normal FHA loans. However, our minimum credit score of 640 for 203k is higher than the minimum for normal FHA loans.

 

Q. What is the down payment on an FHA 203k loan?

A. The minimum down payment is 3.5% of the "total price" of the home. The "total price" is considered to be the purchase price plus the cost of repairs.

 

For example, if a home with a price of $70,000 and cost repairs of $30,000 would have a "total price" of $100,000. Assuming the home appraised at $100,000 or more, the minimum down payment would be $3,500.

 

Q. How can I afford to live somewhere else while my home is being renovated?

 

A. If you cannot occupy the home during renovations due to the nature of repairs, the regular 203k program allows you to finance up to 6 payments as part of your loan. That means it's possible to set up your loan in a way that allows you not to make payments during the course of repairs.
 

Q. Where can I find the Consultant for a Regular FHA 203k loan?

A. No need to worry! We have the official list of HUD-approved Consultants.

Q. What other renovation programs can I compare?

A. We also provide renovation financing through a program called HomeStyle. When you get in touch with us, we can help you compare the ins-and-outs of FHA 203k vs. HomeStyle.

Thanks for all the info! What Are My Next Steps?

If you're targeting a purchase within the next three months, go to the Get Started Online portal. That's the first step for us to get to know your situation so we can help you understand your options.

If you're targeting a purchase further down the road (4-12 months), use the contact form below to prepare for a phone call.

I'm more than 3 months away. Let's just talk!

I'm outside WI but would like to talk with a colleague who works in my area!

Greg Schliesmann
Branch Manager, NMLS# 234288
Cherry Creek Mortgage Co., Inc

Greg Schliesmann
Branch Manager, NMLS# 234288
Cherry Creek Mortgage Co., Inc

1033 N Mayfair Rd, Suite 100
Wauwatosa, WI 53226

Tel: 414-617-1756

1033 N Mayfair Rd, Suite 100
Wauwatosa, WI 53226

Tel: 414-617-1756

Free Access to Greg's Valuable Video Series

Five Strategies to Stand Out from Homebuyer Competition and Get Your Offer Accepted!

Free Access to Greg's Valuable Video Series

Five Strategies to Stand Out from Homebuyer Competition and Get Your Offer Accepted!


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Cherry Creek Mortgage Co., Inc. NMLS #3001. All Rights Reserved. Some loan products may not be available in all states. Terms, rates, and fees subject to change. Please speak with one of our loan originators for more detail.