Should You Use a 203(k) Loan to Renovate a Home?

If you’re thinking about either buying a fixer-upper or making significant renovations to your home, an FHA 203(k) loan might be a good funding option to consider.

What Is an FHA 203(k) Loan?

FREE Mortage Check-Up
For Refinance

 Applying for a loan is always a no-cost action

FHA 203(k) loans, also called renovation loans or mortgage rehab loans, cover both the cost of a home and the cost of renovating that home as a single purchase. These loans can be used to either buy a new property that needs work or refinance an existing mortgage to include renovation costs. Because they’re a type of FHA loan, 203(k) loans have lower credit score and down payment requirements than conventional alternatives. They’re also only available for your primary residence.

These loans also have specific rules in place for the type of work you can do with them. Renovations need to improve the safety, function or appearance of the home. 203(k) loans don’t cover improvements the FHA considers luxuries, like building a pool or an outdoor fire pit. However, moving walls, replacing flooring, landscaping work, plumbing upgrades and roof replacements are all allowed. You can even tear down the home and rebuild it entirely as long as you keep the existing foundation in place. You’ll also need to stick to the FHA’s required timeline. This means you’ll need to start renovations within 30 days of closing and finish them within six months. You’re also required to hire a professional contractor to complete your renovations. You can’t use a 203(k) loan to cover the cost of work you do yourself.

Qualifications

If your renovation goals fit with the FHA requirements, you’ll also need to meet these financial requirements to qualify for the loan:

  • Have a credit score of 500 or higher
  • Make a 3.5% down payment if your credit score is 580 or above
  • Make a 10% down payment if your credit score is between 500 and 580

You’ll also need to pay FHA mortgage insurance, which will increase the cost of your loan. Most FHA borrowers add this expense to their loan totals, which means paying between .45% and 1.05% of your loan amount as an additional fee each year.

Do You Need a Limited or a Standard 203(k) Loan?

Depending on the amount you plan to borrow and the scope of your renovation plans, there are two types of 203(k) loans.

Limited

If you want to make relatively minor upgrades to the property that don’t require structural changes, you’ll probably apply for a limited 203(k) loan. Limited loans allow you to borrow up to $35,000 for repairs like updating appliances or putting in new floors.

Standard

If you’ll be adding rooms, moving walls or spending more than $35,000, you’ll need a standard 203(k) loan. With these loans, you’ll need to borrow a minimum of $5000 up to a maximum amount that depends on the cost of living in your area. This ranges from about $472,000 to just over $1 million. Because you’ll usually be making more complex changes, you’re required to hire a consultant from an FHA-approved list to oversee the project. If you’re doing major structural work or other renovations that mean you can’t live in your home while your contractors are working, you can also include the cost of mortgage payments during that time in your standard loan. This makes it easier for you to afford to live elsewhere during renovations.

When Is an FHA 203(k) Loan a Good Idea?

These loans are a great option when you either want to renovate your home and refinance your mortgage at the same time or want to buy a home that would require substantial repairs and upgrades to live in comfortably. If you need to borrow money for home improvement projects, a 203(k) loan will have a much lower interest rate than a credit card or personal loan.

Like other FHA loans, 203(k) loans are easier to qualify for than most conventional loans. This makes them a great option if you have a low credit score or don’t have the money for a large down payment. If your renovation plans fit with the loan requirements, including the scope and the timeline, 203(k) loans are an affordable way to get funding.

When Should You Look for Alternatives to a 203(k) Loan?

203(k) loans aren’t the right fit for every borrower. There are several reasons you might want to consider another funding option like the Fannie Mae HomeStyle loan, which is a conventional mortgage and renovation loan. First, your project might not fit the timeline requirements. If you know that you won’t be ready to start renovations right away after buying your house or you want something especially complicated that will take more than six months, you should look for a more flexible alternative.

These loans also need to be used for your primary residence, so they aren’t an option for vacation homes or investment properties. They can’t be used to put in a swimming pool or certain other features the FHA considers luxuries. If putting in a pool is a priority or you want to renovate a second home, you’ll need to look into conventional renovation mortgage options.

Depending on where you live, a 203(k) loan might not give you enough money to work with. This is especially true if you live in a lower cost of living area because the limit will be much lower. If you’re interested in purchasing an expensive property that requires expensive renovations, you might need to look at larger loan options.

If you have lots of savings to use as a down payment and a high credit score, a conventional loan might be a better option for you. You could get a better interest rate and you won’t need to pay FHA mortgage insurance. If you’re in this position, it can be a good idea to look at both FHA and non-FHA loan options to compare rates.

If you’re considering an FHA 203(k) loan or any other type of mortgage, it’s important to work with an expert loan officer for the best advice. Contact Intercoastal Mortgage to find a lender near you.

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo.Lorem ipsum dolor sit amet consectetur adipiscing elit dolor

Read the Latest Insights

You May Also Like

We’ve Helped Thousands of People Wake Up in a Home They Love

INTERCOASTAL MORTGAGE testimonial Tara Clarke

Tara Clarke

Working with Intercoastal mortgage has been a great experience! They have been attentive to my needs, responsive to my requirements and time constraints, and are knowledgeable of the standard processes as well as nuances involved in securing a mortgage to meet my needs. I will gladly work with them in the future and recommend them as a top-tier loan servicer.

INTERCOASTAL MORTGAGE reviews stars
INTERCOASTAL MORTGAGE Careers testimonial tn

Ann Groat

I cannot recommend Intercoastal Mortgage enough! They went above and beyond to ensure our refi helped us achieve our goals. Our loan was a long process and ICM gave great advice throughout. They took lots of time to ensure we were satisfied, and the team there was also amazing. Quick to respond to questions and very easy to work with!

INTERCOASTAL MORTGAGE reviews stars
INTERCOASTAL MORTGAGE testimonial John Cooper

John Cooper

Working with Intercoastal Mortgage was so amazing! I couldn’t imagine working with another company other than ICM. They put in a lot of work to help us and were always super knowledgeable. I can’t recommend Intercoastal Mortgage enough. Overall, I am Super pleased with my experience!

INTERCOASTAL MORTGAGE reviews stars

Your Home Journey Starts With Intercoastal Mortgage

Privacy Policy

What does Intercoastal Mortgage, LLC,
do with your personal information?

Why?

Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notce carefully to understand what we do.

What?

The types of personal information we collect and share depend on the product or service you have with us. This information can include:

Social Security number and Account balances
Payment history and Transaction history
Credit history and Credit scores

How?

All financial companies need to share Customers personal information to run their everyday business. In the section below, we list the reasons financial companies can share their Customers personal information; the reason Intercoastal Mortgage, LLC chooses to share; and whether you can limit this sharing.

Reasons we can share your personal information

For our everyday business purposes — such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus.

Does Intercoastal Mortgage, LLC share? Yes
Can you limit this sharing? No

For our marketing purposes — to offer our products and services to you.

Does Intercoastal Mortgage, LLC share? Yes
Can you limit this sharing? Yes

For joint marketing with other financial companies

Does Intercoastal Mortgage, LLC share? No Can you limit this sharing? We don’t share

For our affiliates’ everyday business purposes — information about your transactions and experiences.

Does Intercoastal Mortgage, LLC share? Yes
Can you limit this sharing? No

For our affiliates’ everyday business purposes — information about your creditworthiness.

Does Intercoastal Mortgage, LLC share? Yes
Can you limit this sharing? Yes

For our affiliates to market to you.

Does Intercoastal Mortgage, LLC share? Yes Can you limit this sharing? Yes

For non-affiliates to market to you.

Does Intercoastal Mortgage, LLC share? No Can you limit this sharing? We don’t share

To Limit Our Sharing

Call 703-449-6800 or

Visit us online:ICMTG.com/Opt-out
Please note: In you are a new customer, we can begin sharing your information 30 days from the date we sent this notice. When you are no longer our customer, we continue to share your information as described in this notice.

However, you can contact us at any time to limit our sharing.

Intercoastal Mortgage, LLC

Questions?

Call 571-266-6534 or go to ICMTG.com/Opt-out.

Who We Are

Who is providing this notice?

Intercoastal Mortgage, LLC

What We Do

How does Intercoastal Mortgage, LLC protect my personal information?

To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings. We also use procedural safeguards that comply with Federal standards to guard your non-public personal information.

How does Intercoastal Mortgage, LLC collect my personal information?

We collect your personal information, for example, when you:

Apply for a loan or
Provide account information or
Provide employment information or
Give us your contact information or
Give us your wage statements

We also collect your personal information from others, such as credit bureaus, affiliates, or other companies.

Why can’t I limit all sharing?

Federal law gives you the right to limit only:

sharing for affiliates’ everyday business purposes — information about your creditworthiness affiliates from using your information to market to you
sharing for non-affiliates to market to you
State laws and individual companies may give you additional rights to limit sharing.

Definitions

Affiliates

Companies related by common ownership or control. They can be financial and non-financial companies.

Our affiliates include companies such as Van Metre Companies and ERA Van Metre Properties, Lender Service Provider, LLC, Walker Title, LLC, Walker/Dominion Title L.C

Non-affiliates

Companies not related by common ownership or control. They can be financial and non-financial companies.

Intercoastal Mortgage, LLC does not share with non-affiliates so they can market to you

Joint Marketing

A formal agreement between nonaffiliated financial companies that together market financial products or services to you.

Intercoastal Mortgage, LLC does not jointly market

Other Important Information

California residents only; we will not disclose or share information about California residents without first providing you with a California Privacy Notice honoring your choice unless such sharing or disclosure is permitted by applicable law.

INTERCOASTAL MORTGAGE popup book mockup

FREE Mortage

Check-Up For Refinance

 Applying for a loan is always a no-cost action

We Only Send You Awesome Stuff =)