Anyone looking for homes or is looking into renovating is probably familiar with the 203k loan. These loans allow you to do both of those things, letting you integrate that into your mortgage.
How It Works
As mentioned, the goal with the 203k is to provide homeowners options to borrow money payable over time along with their mortgage. This is seen to be a more accessible way for homeowners to renovate their homes or improve their purchase budget.
If you’re considering getting a 203k loan, you should be aware that there are generally two types— limited and standard, with limited sometimes known as “streamline”. In either case, a 203k refinance is an option for current homeowners.
Limited loans provide loans amounting to $35,000 for renovations, limited only to smaller projects. Larger home projects will need a different kind of loan.
Standard loans, meanwhile, might be an option for those larger projects. The primary difference is that there is a minimum loan requirement ($5,000) and borrowers are also required to hire a HUD consultant for project oversight.
Eligibility
With all that said, it should be understood that only certain projects will be eligible for a 203k loan. You can expect them to fall under any of these categories:
- Improve a home’s functionality
- Improve a home’s safety hazard
- Rehabilitation of water and electrical lines
- Roof and gutter repairs
- Improve home energy consumption
- Improve home’s wheelchair access
- Home flooring repair and rehabilitation
- Removal of health hazards
Qualifications and Limits
Now that we’ve talked about how the loan works, let’s break down what you’ll need to qualify for this loan. That’s why it’d be important to remember that the 203k is still an FHA loan which means it is subject to the same limitations as the others.
You can expect the following to bear some weight when you apply for a 203k:
Credit Score
It should be easy to understand why this will be necessary. On average, a credit score of 500 or more is required for a 203k but this will vary depending on the lender.
Downpayment
Your credit score will dictate the kind of downpayment you make as well. For those with a credit score between 500-579, a downpayment of 10% is required. For those with credit scores above 580, the downpayment for the loan will only be 3.5%.
Limitations
As we’ve mentioned, 203k loans are still FHA loans. That said, the maximum limit will depend on the area you live in. Low-cost counties will cap loans at $420,860 and high-cost counties will cap loans at $970,800.
Final Thoughts
At the end of the day, it’s all about being prepared. It’s best if you can continue to do your own research before deciding. After all, a decision as big as taking on a loan shouldn’t be taken lightly. Once you’ve learned what you could, talking to a professional is your best step forward.
Are you looking for FHA loans in Phoenix? Desert Springs Mortgage is a full-service mortgage brokerage focusing on the purchase market through realtor partnerships and outstanding customer service. We offer conventional, FHA, VA, USDA, asset-based lending, HomePath, hard money, commercial lending, reverse mortgages, and many other various financing options in five states: Arizona, California, Colorado, Oregon, and Washington. If you need a home loan in Phoenix, AZ, call us at (623) 432-1309 today! Let us know how we can help!
