An FHA 203K loan is a home repair mortgage that allows you to borrow enough money to purchase a home and pay for repairs at the same time. This is a perfect loan for home buyers who would like to buy a home that requires substantial renovations. This type of loan has similar advantages to other FHA loans in that it requires a smaller down payment and has lower credit score minimums than non-FHA loans.
You can think of an FHA 203K loan as a 2-for-1 deal that allows you to save money because you only have to pay interest on one loan for purchasing a home and making repairs, instead of having to take out several loans.
FHA 203K loans are great if you are looking to purchase a home that needs a lot of repair work. However, there are specifics about these types of loans that some people may see as a disadvantage. These include:
A prolonged home buying process: To qualify for an FHA 203K loan you must receive lender approval for your planned home repairs and contractor.
As a result, you must have an idea of what types of renovations you will need, how much each one will cost, and which contracting company you will use before you are able to purchase your desired home.
You cannot do DIY repairs: Because FHA 203K lenders must approve your contractor you cannot receive this type of loan money to do repairs yourself unless you can prove that you are qualified to do this type of work.
Your desired home must need extensive repair: To qualify for an FHA 203K loan you must be planning to spend at least $5,000 in home renovation.
Your contractor must stick to a schedule: To receive money for an FHA 203K loan your contractor must be able to complete the approved work within 6 months.
Next, find out how to qualify for FHA loans.