FHA Rehab Loans
FHA Rehab Loans: Perfect For That Fixer-Upper
If you are a fan of taking on a fixer-upper home as your first home so that you can do the rehab and make the home your dream home, you are in luck. Also, if you find yourself searching for a home in a neighborhood that you simply cannot afford and the only way to purchase is to find a home that needs a lot of work, then you are also in luck. In both cases you should be investigating FHA Rehab Loans as they offer the ability to do rehab work on your home as well as the benefits and guidelines of FHA Loans. If under normal circumstances you would prefer to buy with an FHA Loan, then you should definitely consider FHA Rehab Loans because you will not be required to go through the requirements that other loan options may require particularly from Conventional Loans from Fannie Mae which we will touch on below.
FHA Rehab Loans Guidelines
If you aren’t familiar with the FHA Rehab Loans Guidelines, we can go through them below as they are nearly identical to the standard FHA guidelines.
- FICO Credit Score: In order to get FHA Rehab Loans you will be required to have at least a 580 FICO credit score in order to get approved for a loan with a down payment requirement of 3.5%. In comparison to Fannie Mae products on rehab / construction loans you will more than likely be required to have a 700+ FICO credit score or you may just get denied.
- Down Payment: As mentioned above, FHA Rehab Loans act just like FHA Loans for the fact that with a 580 FICO credit score you are able to obtain these loans with just a 3.5% down payment. Now the down payment isn’t just on the list price of the home, but the list price PLUS the rehab costs. So if you have a home for $120,000 and $45,000 of rehab costs, then you will be responsible for 3.5% of $165,000.
- Debt to Income Ratio: Per FHA guidelines, you are able to have a debt to income ratio of up to 56.9% if your FICO credit score is at least 620. For FICO scores less than 620, you will be forced to make due with a 43% debt to income ratio.
- Loan Limits: For FHA Rehab Loans the maximum loan amount you can have is 110% of the future home value after all work has been completed.
- Occupancy: If you are looking at FHA Rehab Loans you will need to make sure this is your primary residence and an owner-occupied dwelling. FHA Rehab Loans are not designed for house flippers or investors.
Types Of FHA Rehab Loans
There are two main types of FHA Rehab Loans, the standard 203K and the 203K Streamline. Each of these types have their own uses and after reading below, you can determine which loan type is right for you.
- Standard FHA 203K: This loan comes without loan limits as to the amount of funds used in order to perform approved repairs per the guidelines but you will have to make sure that your loan amount is at least $5,000. The types of repairs that are covered by this loan option is and not limited to: Relocation of load bearing walls, structural repairs to the foundation and load bearing walls, additions for new rooms, transforming single unit buildings into multi-unit buildings and vise versa.
- FHA 203K Streamline: This loan is typically used for borrowers who want to perform some rehab work to their current home. The loan limit for this program is $35,000 so it is good for minor remodeling because you cannot use these funds for structural changes. Also, the 203K Streamline is then rolled into your current FHA loan and combined for one payment every month under your FHA loan guidelines.
What a lot of borrowers don’t know is that FHA has some very attractive products for rehab loans and if you have interest in this then Nick Ferrante NMLS# 1110570 of Mortgage Scenarios through Fairway Independent Mortgage Corporation NMLS# 2289 is the right place to get all your questions answered and your loan process started. Feel free to reach out to Nick any time at 630-465-2656 or fill out your application here.