Read on for everything you need to know about FHA 203k loans, eligibility criteria, the application process, and much more.
What are FHA 203k Loans?
FHA 203k loans go by numerous names, including section 203k loans, mortgage rehabilitation loans, and renovation loans. All these titles are for a government-backed loan program that borrowers can use to buy a home and make the necessary renovations without having to get a different mortgage.
Simply put, you can use a single FHA 203k loan mortgage to fund a home purchase and pay for essential improvements and renovations. Amazing, right?
The FHA 203k loan program is mainly tailored for low-income individuals that need financing to afford properties. Its nature makes it easier for said people to purchase homes even if the ones they can afford are in dire need of repairs.
The loan amount you can borrow from the section 203k mortgage program includes the property's purchase price and renovation costs. The latter covers myriad aspects, including hired labor and material costs.
FHA 203k Loan Types
There are two 203k FHA loan categories:
Limited 203k Loans
A limited 203k loan can help you improve or renovate a fixer-upper if it doesn't require much work. Strictly speaking, this option allows homeowners and homebuyers to finance $35,000 or less into their mortgage and use the amount to upgrade, improve, or repair their homes.
The best thing about the limited 203k loan program is it allows you to get cash faster and with less hassle. And that comes in handy when you face improvements or repairs demanding prompt attention, such as problems or damages identified by an FHA appraiser or home inspector.
Here are some of the projects an FHA 203k limited loan can help you pay for:
- Installing energy-efficient windows
- Refinishing floors
- Roof repairs
- Applying a fresh coat of paint
- Replacing showers and tubs
- Adding downspouts and gutters
- Septic repairs
- Siding repair and replacement
- Kitchen and bathroom countertop replacements
- Updating plumbing, electrical, and heating, ventilation, and air conditioning (HVAC)
Standard 203k Loans
A standard 203k loan can help you pay for major structural repairs and remodeling projects. So, if you are eyeing a home with a problem that's too big to be covered by the limited 203k FHA loan program, this option can bail you out.
To qualify for a standard 203k loan, ensure your project's expected costs are $5,000 and above. This program has no set maximum amount. The repairs, renovations, and upgrades usually supported by the standard 203k loan program include:
- Fixing foundation issues
- Increasing window sizes to let in more natural light
- Finish basement or attic construction
- Repair swimming pool
- Adding retaining wall for flood prevention
- Increasing kitchen size
- Adding a detached garage
- Full bathroom remodels
- Appliance replacement or upgrade
Reasons to Take Out an FHA 203k Loan in Alachua County, Florida
Taking out a mortgage is a big, life-changing step. As such, much forethought needs to go into it. That is why you should apply for an FHA 203k loan without asking yourself if that is advisable. Here are several points that'll help you decide accordingly:
Low Down Payment
One of the barriers faced by many homebuyers is steep down payment requirements. What does that mean?
Most first-time homebuyers put down around 6%, while repeat buyers pay approximately 13% down payment. So, if you are a first-time homebuyer eyeing a home worth 300,000, you'll likely have to put down $18,000 or so. And that's just the best-case scenario.
Factors like deplorable credit and opting for a jumbo loan may force you to pay more. You may have to put down 20% or higher! Seem a bit much. But don't worry. You can avoid such ungodly expenses through the FHA 203k loan program.
With a good credit score, you may have to pay a down payment as low as 3.5% when taking out an FHA loan. And getting a mortgage that doesn't require you to put down crippling sums is a huge plus because it leaves you with more money in your pocket, which you can use to cover numerous other expenses, including inspection and closing costs.
Lenient Credit Requirements
You need around 620 credit score points to get a mortgage from most traditional lending institutions. But that may be an issue if you are in the same category with approximately 16% of Americans who have bad credit for various reasons, including defaulted loans and late bill payments.
Fortunately, bad credit doesn't have to deter your home ownership and improvement goals. That is so because you can get an FHA 203k loan with as low as 500 points. The downside is that a low credit score attracts higher down payment requirements.
If your credit score is between 500-580, the FHA 203k loan program requires you to put down at least 10%.
Current mortgage rates are around 5.3% for 30-year fixed mortgages, 4.5% for 15-year fixed-rate mortgages, and 4.7% for 5-year ARMs (adjustable-rate mortgages). But the interest rates for FHA loans are different.
Currently, FHA-backed mortgages attract 4.790%, 4.890%, and 4.210% for 30-year fixed-rate mortgages, 15-year fixed-rate mortgages, and 5/1 adjustable rate mortgages, respectively. The interest rates for FHA loans are significantly lower. But is that enough reason to choose these solutions? Of course.
Reduced mortgage rates can help you save significant amounts. Picture this. Suppose you opt for a mortgage solution with an interest rate that's 1% lower. If, for example, you are about to take out a loan worth $300,000, the drop can help you save approximately $3,000. And that is every month!
A home in a deplorable condition is the bane of many prospective homebuyers' and lenders' existence. Why? First, if you buy a home that needs fixing, tackling repairs and improvements can cost you enormous amounts of time and money. And that is something you don't want to deal with when trying your hand at homeownership.
Lenders, too, avoid properties in poor condition because they are associated with significant risks. For starters, an institution may fail to correctly appraise properties with said issues, leading to significant complications in the future.
Most importantly, as homebuyers, you'll likely have trouble finding a mortgage company willing to help you buy a home in poor condition. But what if we told you there's a program that will allow you to buy a fixed-upper using a loan and fund repairs and improvements? The answer lies with the FHA 203k loan program.
And the best part is that the FHA 203k loan program offers borrowers one big loan that covers everything: home purchase and improvement costs.
FHA 203k Qualification Requirements and Eligibility Hacks
Here are the primary qualification requirements for FHA 203k loans and tips you can use to bolster your eligibility:
Minimum Credit Requirements
To get an FHA 203k loan, you need a credit score of at least 500. And this is just the minimum requirement. Some lenders won't finance you if your points are below 620. Does that mean you should avoid section 203k loans entirely? Not really.
Several ways can help you improve your credit score and ensure it has met or exceeded set minimum requirements. First, bolster your credit file. You can do that by opening a reasonable number of accounts and ensuring one or more are active.
Also, don't miss payments. We can't overemphasize that because every late or missed payment can slice your score by 90-110 points. Since each single point matters when qualifying for an FHA 203k loan, that is unacceptable.
Other tips for improving your credit score involve catching up on due bills, paying down revolving account balances, and avoiding too many accounts.
Lenders categorize occupancy in three brackets: primary residence, investment property, and second home.
Institutions define primary residence as a one-to-four unit family house the borrower uses as their principal home and occupies for a significant part of the calendar year. Moreover, for a property to be a principal residence, its address must be listed on the borrower's state or federal tax returns.
On the other hand, an investment property is a home you plan to use for income-generating purposes, while a second home is one you plan to occupy for certain portions of the year, like summer or winter.
With that in mind, the FHA 203k loan program is primarily for borrowers that need help financing primary residences. Strictly speaking, you can't use this platform to buy or improve a second home, vacation residence, investment property, or any other type of building.
That said, there's one legitimate way to fund investment property purchase and improvement using an FHA 203k loan. It involves 2 to 4-unit properties and using one of them as your principal residence for a year or more.
Debt-to-income Ratio Requirements
Did you know that mortgage lenders evaluate borrowers' debt-to-income ratios (DTIs) before awarding a loan? They do it because it effectively determines the risks associated with applicants taking additional financial responsibilities.
Generally, taking out a mortgage may be challenging without a 31% maximum front-end DTI and 43% back-end DTI. If your percentages exceed the said numbers, you may be out of luck for now. You can still get an FHA 203k loan if you lower your DTI. How?
There are several ways to cut your debt-to-income ratio. First, try directing extra payments toward your debts. Then, avoid borrowing more or making large purchases. Lastly, explore debt forgiveness strategies and find one that fits your situation.
How to Get What You Need Out of Your Current Home Using an FHA 203k Loan in Alachua County, Florida
Moving is draining and strenuous. For one, you must deal with the physical strain of heavy items like couches and cabinets. Moreover, the entire process can be incredibly costly when a long-distance move and valuable items and involved.
But moving shouldn't be an option, especially when repairs and improvements are the primary catalysts. You can avoid all associated complications or relocation by using an FHA 203k loan to get what you need out of your home. Here are several FHA-supported projects that may help to that end:
Increasing Your Home's Square Footage
Did you know that every 1,000 square feet added to your property increases the ultimate selling price by around 30%? That's right. So, if you are considering adding more rooms or expanding your home's square footage in any other way, go ahead; you won't regret the decision when it's time to sell.
The good news is that the FHA 203k loan program can help you kickstart and complete projects that'll help you increase your home's square footage. For example, this solution can help you add bathrooms and bedrooms or build a different story on your property. And all these add livable space to your home.
Adding New Bathrooms
Nothing is arguably more inconvenient than living in a home with insufficient bathrooms. Why? Everyone in your household needs to shower and groom at some point. That can be bad news when the people involved have to do it simultaneously, and all bathrooms are occupied.
Fortunately, you don't have to put up with living in a house with bathroom wars anymore. You can avoid this problem by applying for an FHA 203k loan and using the funding to install additional bathrooms on your property.
Improving Cosmetic Appeal
Making cosmetic upgrades is one of the best ways to improve your home's visual appeal. We mean undertaking projects like painting the building afresh, using crown molding to elevate the property's style, and replacing outdated elements like old cabinets.
But why would you invest in cosmetic upgrades? First, this project can dramatically improve property value. A professional painter charges around $4,000 to apply a fresh coat to the exterior of a 2500 sq ft two-story home! What's more, most other upgrades don't cost that much.
And don't worry about financing upgrades out of pocket. With an FHA 203k loan, you can pay for cosmetic repair works without any hassles.
FHA 203k Loan Application Process
Ready to take out an FHA 203k loan? If yes, follow these steps:
- Find an approved lender
- Get loan approval
- Pick a good contractor
- Get bids or estimates
- Close on the loan
- Buy your home and pay for repairs or improvements
- Move in and enjoy
Top 5 Desserts in Alachua County, Florida
Suppose you've found an approved lender and submitted your application. What's left? A celebratory dessert sounds about right. If you are a dessert fan, here are five of the best treats you can use to pat yourself on the back:
Pumpkin pie has been an American favorite Thanksgiving delicacy for eons, and with good reason. First, this treat is delicious, effortless to make, and good for your eyesight.
And the good news is that Alachua County has countless dessert places that prepare flawless pumpkin pies. Just pop into any of the popular spots and gorge yourself!
Vegan Ice Cream
Are you a vegan? If yes, you'll be glad to know that vegan ice cream is abundant in Alachua County. Don't take our word for it; try Alachua's vegan ice cream!
If you feel like a plant-based treat with zero animal ingredients and uncapped nutrition, the dessert places in this area won't disappoint.
What's not to love about puff pastries, with their paper-thin butter layers and crisp sheets? Not to forget, these treats are incredibly nutritious.
So, if you need a mouth-watering dessert for replenishing energy reservoirs after visiting all the exciting places in Alachua County, munching on puff pastries may do the trick.
Burritos are cute. Picture holding a juicy beef burrito, choke-full of ground beef, Mexican rice, and cheddar cheese. Are you drooling yet?
Try Alachua County's beloved delicacies if you'd like to enjoy a life-changing, nutrition-filled burrito. One won't be enough, so prepare to chow down on a couple.
Janet Evanovich once said that her Spanish is limited to burritos and tacos. But she didn't know that most of our Spanish dictionaries are also limited to said vocabularies.
Why? Most of us love tacos. Why wouldn't we when these delicacies are perfect for any meal, be it breakfast, lunch, dessert, or supper? Moreover, you can order an outstanding taco from most restaurants and food trucks in Alachua County.
The Bottom Line
Alachua County, Florida is one of the best places to live. And financial shortcomings shouldn't stop you from enjoying this region's perks. Why?
The FHA 203k loan program can help you fund a home purchase in Alachua County, Florida and finance upgrades, repairs, and improvements. Submit your application to this program today! Good luck.