FHA Rehab Loan: What is it?

Are you looking at purchasing a fixer-upper, but have a difficult time coming up with the funds needed to remodel the property? Or maybe you do have enough funds for repairs, and you’ve found a home that you absolutely adore, but your lending firm won’t permit you to purchase it since the house isn’t perceived to be liveable without crucial features.


Today, there will always be properties in the market that were poorly treated by previous renters, weren’t maintained by former cash-strapped owners, or were intentionally trashed by previous owners who experienced a foreclosure.


Is there a way for an ambitious individual like you to still be able to buy a home and bring back to life the radiance and glow these houses once had?


Government Rehab Loan


Fortunately, there really is a way to purchase a fixer-upper, and it’s sponsored by the federal government. The rehab loan product that’s brought to you by the Federal Housing Administration (FHA) is referred to as the FHA 203K loan. This is intended for people who want to repair or renovate a blemished property so they can reside in it and make it their primary residence. This kind of mortgage is augmented by the government to embolden lending companies to offer what they otherwise would provide to those who are considered to be high risk. Because of the potential monetary danger and expenses involved, rehab endeavors are typically managed by professional real estate experts who can afford to purchase these homes with cash and no longer course their transaction through a bank or a lending firm.


This blog post will explain how much money you’re going to need to save, and also talk about the two different types of FHA 203K loans.


203K Mortgage Types


Currently, there are two FHA 203K types: regular and streamlined (which may also be referred to modified).


  • Streamlined versus Regular


A streamlined loan is for individuals who will not need massive renovations or non-structural repairs. On the other hand, a regular is for homes that call for extensive structural work. Both 203K types may be utilized for refinancing or purchase.  


  • Regular


For a regular 203k loan, the highest mortgage amount will depend on whatever is the lesser of the as-is property value on top of rehab costs or 110% of the estimated property value of the home after rehab. Simply put, no one would want to obtain a home with an as-is value of, say, $150,000 if it still needed $25,000 in repairs not unless one had a spare $10,000 in hard cold cash since the highest amount one could borrow would be $165,000.


  • Streamlined


Meanwhile, a streamlined loan permits borrowers to supplement $35,000 maximum to the purchase price needed to pay for overhauls. Just like with any other mortgage, one is obliged to have the funding and income to keep up with mortgage dues as opposed to just borrowing money just because one feels that the home needs certain repairs.

rehab loan

FHA 203K Guidelines


An FHA 203k mortgage allows you to integrate the funding needed for overhauls and similar expenses required for the loan. Should you want to purchase a property where the bathrooms have been broken and ripped out, you would have the opportunity to include in your loan the fees needed in buying new tiles, toilets, floorings, and whatever else is needed to work on your bathrooms. Your loan may also involve a 10 to 20 percent contingency reserve for repairs that go beyond your renovation estimates.


All that established, what exactly are the many perks an FHA 203K can provide any aspiring homeowner?


203k loan advantages


  • Savings


An FHA 203k rehab loan can permit you to cling on s tightly as possible when renovating a fixer-upper. Generally, home renovations can be costly and overwhelming. If you depend solely on your savings to see you through, you will most definitely be cash-strapped in the long run. Under an FHA 203k loan, you can better monitor how much is going where without having to let out your savings on the spot.


  • Amazing deals


It’s no secret that rehabilitation home loans really meant for fixer-uppers. Having said that, this home loan will definitely permit you to purchase a house many other loan programs would not.


For specific FHA 203K loan rates, click the link!


By: Karissa