To qualify for an FHA 203K loan, there are certain conditions that you must meet. First, you must be planning to reside in the home that you are using the loan for. Keep in mind that you cannot use FHA 203K loan money for investment properties. You typically have to have a credit score of 620-640 to qualify for this type of loan although some lenders may accept a score down to 500.
This is still much lower than the credit score required for most construction loans, so it makes the FHA 203K loan worthwhile. In most cases your debt-to-income ratio must be below 43%, which means that less than 43% of your income should be going towards your mortgage payments and other debts.
Once you have identified a home that you would like to buy, you must follow the process below for using the 203K loan program:
Search for a FHA-approved lender and receive mortgage quotes. You should ask for quotes from several different lenders to comparison-shop for the best deal.
Apply and receive pre-approval if you meet the basic qualifications for an FHA 203K loan..
Find a contractor and get quotes for the planned repairs.
Submit all quotes to your lender for final approval.
Close on the home. This means that you will pay the down payment and sign all final mortgage documents, so that the house is yours.
The approved contractor begins repairs and completes them within the timeframe of the six required months.
Move into your new home.