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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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June 24, 2019
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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

Comparing FHA Refinance Loan Options

June 11, 2019 - The kind of FHA refinance loan you get will depend on what your financial needs and goals are; some borrowers want cash back, others need a lower mortgage payment, and some just want to get out of an adjustable rate mortgage into the predictability of a fixed-rate FHA mortgage.

The FHA Appraisal Rule You Need to Know

June 8, 2019 - The FHA and HUD warn consumers that the appraisal is not to be considered a home inspection. It’s true that you certainly could buy a home without having it inspected, and while you’re at it you could also buy a car without test-driving it first.

Selling Your Home Purchased With an FHA Mortgage

June 7, 2019 - If you buy a home using an FHA home loan, there are built-in protections. Those protections include rules that prevent loans for certain properties with homeowner association agreements that don’t allow the borrower to freely sell or transfer the property.

FHA Loan for a Second Home?

June 5, 2019 - FHA refinance loans are intended for residences, so you can’t refinance a vacation home, a time share, or any kind of commercial operation such as a Air B-nB, a bed and breakfast, condohotel, or other transient occupancy type rental space.

Who Needs a Co-Borrower for an FHA Mortgage?

June 2, 2019 - FHA home loan rules permit more than one person to be obligated on the mortgage, and there are situations where multiple borrowers may wish to purchase a home together even if only one of those borrowers will actually live in the home. 

FHA.com Reviews

FHA.com is a one-stop resource for homebuyers who want to make the best decisions when it comes to their mortgage. With our detailed, mobile-friendly site, individuals can access information about different FHA products, the latest loan limits, and numerous other resources to make their homebuying experience easier. Take a look at some of the reviews from other FHA.com visitors!