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FHA 203(k) Eligibility Explained

FHA 203(k) eligibility – How to qualify for a rehab loan

If you’re in the market for a home that’s not exactly move-In ready, the FHA 203(k) loan may be a good deal. This type of loan helps you finance the home and its repairs, but not every potential buyer or home project qualifies.

Because it’s a type of FHA loan, the FHA 203(k) has some flexibility.

  • Credit score requirement

Like a more traditional FHA, the FHA 203(k) also requires a certain credit score. Unlike a conventional construction loan, though, that credit score requirement is much lower.

  • Minimum down payment

There’s also a minimum down payment to consider. It’s based on the purchase price and the total project cost.

  • Debt & income requirements

A lender is also going to take a look at your debt-to-income ratio. That’s how much you owe

compared to your monthly income.

  • Citizenship

In order to qualify for any FHA loan, you have to be a U.S. citizen or lawful permanent resident.

  • Occupancy

You will also need to live in the property you want to buy and fix up.

It won’t work if you’re hoping to fix up the property, then quickly sell it as an investment.

While there are certainly limitations, the FHA 203(k) usually works for minor repairs like new paint, new flooring, new appliances and remodeling, as long as the overall cost is significant enough.

It can also work for some larger repairs like making structural alterations and some large landscaping projects.

If the home’s too run down, though, you CAN’T use an FHA 203(k) rehab loan.

When is using the FHA 203(k) loan a good idea?

I’m on a tight budget.

If you don’t have a lot of money to spend on a home right now, but you’re willing to snap up a good deal, this type of loan may be a good idea.

I want an older, run-down home to repair

Some people simply enjoy finding an older, run-down home and fixing it up in their style. For these types of buyers, it’s definitely a more appealing choice than a more expensive, move-in ready home right now.

How do I start the process?

In order to qualify for this type of loan, you need to apply for one with an approved 203(k) lender. Once you do find a lender and get approved, you’ll then need to

  • Find a contractor
  • Collect repair estimates
  • Close on the loan
  • Complete the repairs

Then it’s time to move into the property. Another key thing to keep in mind is that a 203(k) loan typically takes a bit longer to close.

With a more traditional FHA loan, you’re likely looking at 30-45 days. With an FHA 203(k), it may take 60 days or even longer.

About the author

I am from Chicago, IL and I have been lending in this area for 20+ years. My team and I strive to give you an enjoyable mortgage experience while providing you the best programs and rates! I am also offering a FREE mortgage analysis to determine if refinancing is right for you.

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