The FHA refinancing option is considered streamlined because it allows you to reduce the interest rate on your current home loan quickly, sometimes without an appraisal.

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FHA 203(k) Rehabilitation Loans

Sometimes It Pays to Refinance

When we picture buying a home, it's easy to assume that the house is new and in great condition. However, that's not always the case. Many buyers decide to purchase a home that is significantly older, and not in the best condition. There could be a number of reasons for this kind of buy; the buyer is looking for a fixer-upper, the list price is affordable, etc.

Securing a mortgage for such a property wasn't always easy; the entire process could be very costly, with improvement loans that had high interest rates, short repayment terms, and balloon payments. With the FHA 203(k) Rehabilitation Loan, that's no longer the case. This mortgage product enables borrowers to finance the purchase or refinance of a home, along with its renovation or "rehabilitation" of their existing home. A Rehab Loan benefits borrowers, as well as lenders, since it insures a single, long term loan--whether its a fixed-rate or ARM-- that covers the purchase/refinance and renovation of a home.

The FHA's 203(k) program is also a good option in cases of federally declared natural disasters that cause property damage or destruction. Borrowers can use a rehab loan in such situations, to finance the necessary renovations.

Advantages of a Rehab Refinance

There are a number of advantages to refinancing with the FHA 203(k) Rehabilitation Loan. With the FHA Rehab Loan, you have the option to refinance your property and create your own home equity with repairs and upgrades. This 203(k) allows you to buy an older house at a low price (and great interest rates). You are then able to renovate your home according to your own needs and style, while simultaneously increasing equity with the new improvements.

Additionally, the FHA 203(k) loan is a convenient way to purchase or refinance your home, without having a high credit score, making a large down payment, or having high interest rates. As with all FHA mortgage products, your home loan is insured, which allows for more leniency than a conventional loan. While section 203(k) insured loans save borrowers time and money, they also benefit the lender by allowing them to have the loan insured, even though the property has not yet been renovated, and the condition and value of the house may not yet offer adequate security.

Eligible Rehabilitation Activities

There are limitations and restrictions on the amount, types, and costs of rehabilitation covered under the FHA 203(k) Rehabilitation Loan, which range from relatively minor expenses, to virtual reconstruction of the property. For example, the cost of renovation must be at least $5,000. Whereas on the high end, a property that has been demolished or will be razed as part of rehabilitation is eligible under 203(k), provided that the existing foundation remains in place.

According to the US Department of Housing and Urban Development, the types of rehabilitation that borrowers may make using Section 203(k) financing include:

  • Structural alterations and reconstruction
  • Modernization and improvements to the home's function
  • Elimination of health and safety hazards
  • Changes that improve appearance and eliminate obsolescence
  • Reconditioning or replacing plumbing; installing a well and/or septic system
  • Adding or replacing roofing, gutters, and downspouts
  • Adding or replacing floors and/or floor treatments
  • Major landscape work and site improvements
  • Enhancing accessibility for a disabled person
  • Making energy conservation improvements

HUD also requires that properties financed under this program meet certain basic energy efficiency and structural standards.


FHA Refinance Options for Homeowners

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FHA Loan Articles and Mortgage News

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March 14, 2024 - Some loan types allow you to pay 20% down to avoid mortgage insurance altogether. Other loan types may allow you to make a larger down payment and stop paying mortgage insurance after 11 years. Other loans have no program-required mortgage insurance guidelines at all.

What to Know When Building or Renovating a Home

March 12, 2024 - Some want to build a home from the ground up, and that job requires an FHA One-Time Close construction loan. Others want to renovate an existing home using an FHA rehabilitation mortgage or its refinance equivalent.

Manufactured Housing and FHA Loans

March 10, 2024 - Roughly 20 million Americans have purchased manufactured housing, and most government-backed mortgage loan programs offer some type of home loan for these borrowers. That includes the FHA, which offers these types of home loans.

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March 7, 2024 - FHA home loans have some options common to all government-backed mortgages and some unique features. USDA loans may not be approved for “income-producing” properties. But is that also true of FHA mortgages?

Home Loan Options to Consider

March 5, 2024 - Some borrowers anticipate wanting to refinance later, and some don’t. But going forward it may be wise not to skip thinking about a refinance loan when the rates are still elevated. Plan, budget, and save with this in mind.