You've found a home in a neighborhood where you've always wanted to live. And you can snatch it up at a good price. So what's stopping you? Could it be the outdated appliances, dark brown exterior, and wall-to-wall carpeting? It might not be your dream home just yet, but with an FHA 203(k) renovation loan, it could be.
There are many ways to finance a home construction projects but the two versions of the FHA 203k program have emerged as a popular choice among today’s home buyers and homeowners wishing to make home improvements, especially when they don’t own the home yet.
The two FHA programs are known as the Standard 203k, and the Limited 203k.
With this loan you can purchase the property and get the extra funds you need to remodel, repair, and renovate. It's unique because you can borrow the funds you'll need based on what your house is expected to be worth after the renovation is complete.
(The 203(k) can also be used to refinance your current home and make renovations.)
The FHA 203(k) loan is insured by the Federal Housing Administration (FHA), and offers two options: Limited and Standard. Finding the one that's right for you depends on how much you want to spend and what you intend to do.
The differences between the Limited 203(k) and the Standard 203(k) Structural Repairs:
LIMITED: Minor remodeling and non-structural repairs.
STANDARD: Major rehabilitation or when repairs are structural or involve landscaping. Examples include jacking up your house to replace the sill plate or knocking the house down to rebuild it (you must leave the foundation). HUD Consultant.
LIMITED: Does not require a HUD consultant.
STANDARD: Requires the use of a HUD consultant. He will draw up the paperwork and work with you and your contractors to get a write-up before the appraisal and ensure the required renovation is completed. (Your loan officer can work with you to obtain the services of an experienced HUD-approved 203(k) consultant). Cost.
LIMITED: Total renovation costs cannot exceed $35,000. There are no minimum costs.
STANDARD: Your repairs and renovations can go above $35,000. There is a minimum repair cost of $5,000.
Eligible repairs you can make with a Limited 203(k) Repairing or replacing the roof, gutters or downspouts Repairing or replacing HVAC, heating, plumbing, or electrical systems Repairing or replacing flooring Minor remodeling Indoor or outdoor painting Replacing appliances Accessibility upgrades Abatement of lead-based paint Repairing or replacing decks, patios, and porches Waterproofing or finishing a basement Weatherization Eligible repairs you can make with a Standard 203(k) Plumbing, electrical, heating, and cooling improvements Structural changes Storm shelter additions Appliance and HVAC upgrades Roofing alterations Large landscaping and site improvements Sewage and septic improvements Site conversion (from a single unit to multi-unit property, for example) Site relocation Accessibility upgrades Of course, there are other nuances that differentiate the Standard from the Limited.
Which 203k Loan Should I Choose?
The two 203(k) programs also vary in what type of work can be performed. The FHA program guidelines include a comprehensive list.
This is the work which is allowed via the FHA 203(k) Limited:
- Repair/replacement of roofs, gutters and downspouts
- Repair/replacement/upgrade of existing HVAC systems
- Repair/replacement/upgrade of plumbing and electrical systems
- Repair/replacement of existing flooring
- Minor remodeling which does not involve structural repairs
- Exterior and interior painting
- Weatherization of windows and doors, insulation, weather stripping.
- Purchase and installation of appliances
- Improvements for accessibility for persons with disabilities
- Lead-based paint stabilization or abatement of lead-based paint hazards
- Repair, replacement or the addition of exterior decks, patios, and porches
- Basement remodeling which does not involve structural repairs
- Basement waterproofing
- Window and door replacement and exterior siding replacement
- Well or septic system repair or replacement
And, this is the work allowed via the FHA 203(k) Standard:
- Major rehabilitation, such as the relocation of a load-bearing wall
- New construction, including room additions
- Repair of structural damage
- Repairs requiring detailed drawings or architectural exhibits
- Landscaping or similar “site amenity” improvement
- Any repair requiring a work schedule longer than three (3) months; or rehabilitation activities that require more than two (2) payments per specialized contractor
- Improvements that require a plan reviewer
- Improvements that result in work not starting within 30 days after loan closing; or cause the owner to be displaced from the property for more than 30 days during the time the rehabilitation work is being conducted
As a recap, the Limited lives up to its name — less paperwork for the borrower, easier for the lender to approve, and a simplicity in the draw schedule. The Standard 203(k) is meant for “bigger jobs.”
Both loans can be a great option for those looking to buy and rehabilitate before moving in the house.
If you have more questions, or want something concrete in your hands, give us a call. CMG is ranked as one of the top FHA 203(k) lenders in the nation.
*This is not a commitment to lend. Not all borrowers will qualify; contact us for more information on fees and terms.
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