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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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October 13, 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

What to do if Your Home Is Affected by a Natural Disaster

October 3, 2019 - Those who have FHA mortgages should know that the basic policy of the FHA and HUD in natural disasters is that participating lenders should consider loan moratoriums, flexible loan modification plans, and other foreclosure avoidance measures.

Tips to Get a Better Refinance Loan

September 30, 2019 - Do you need to refinance your home? There are some important steps you can take to help yourself get the best deal possible when trying to refinance. A bit of planning and preparation will go a long way toward helping you get the best rates and terms possible on your refi loan.

Reasons Why Home Loan Interest Rates Bounce

September 27, 2019 - In the earliest days of September 2019, mortgage loan interest rates were being reported in some circles as the best in three years. A week later, rates were suddenly pushing higher. Rates become more important when you are about to enter into a mortgage loan interest rate lock commitment with the lender.

Who Is Eligible for an FHA Disaster Loan Modification

September 25, 2019 - When a disaster strikes, it is crucial that FHA borrowers contact their lenders as quickly as possible in the aftermath to make arrangements for the existing mortgage. Yes, disaster-based home loan relief is possible, but it is not automatic and you must apply for this relief with your lender.

Five Questions About FHA Mortgage Loans

September 24, 2019 - It’s easy to understand why some real estate shoppers haven’t decided what kind of mortgage loan they want to apply for when they start the house hunting journey. There are many options, both FHA and non-FHA.