You know that you want to make some repairs on a home you either wish to purchase or refinance and you are qualified to receive an FHA loan, but you have one other option when it comes to making those repairs. Rather than taking out a 2nd mortgage on the home or digging into your personal savings account, you can use the FHA 203K program, which enables you to use the funds from the loan to make the necessary or desired repairs. How do know which 203K loan you need, though? The determination is simple.
The Full 203K Loan
If the changes you plan to make to your home are structural or are considered major repairs, you will need the full 203K loan. In addition, if your changes meet any of the following criteria, the full version of this loan will be necessary:
- Repairs that cost more than $35,000
- Any type of structural changes
- Any type of new construction
- Major remodeling
- Work that requires architectural designs
Basically, if you are making any changes that are non-cosmetic and considered major changes, you will need the full 203K loan. This is not to say that cosmetic changes cannot be included in the full version of this loan – you can include whatever changes you want into the full loan, you just have to have lender approval on all desired changes along with the approved contractor bids to get the work done.
The Streamline 203K Loan
If you do not have major changes being done to the home, such as anything structural, a full rehab of a particular room, or any type of addition, you might qualify for the Streamlined 203K. This version of the loan makes it easy to get through the loan process as there are fewer requirements. During this process, the loan consultant is not required to perform routine inspections or do any heavy work for you – he is simply there to assist with the contractors’ write up for repairs; the rest is up to the appraiser. If the changes you desire to make to your home fall under the following categories, you might be able to get by with the streamlined version of this loan:
- The dollar amount of the changes total less than $35,000
- Cosmetic changes only
- Minor rehab changes that do not require architectural designs
- Updating any utilities
- Replacing or repairing siding or doors
The key factor with the streamlined version of this loan is the dollar amount of the changes. Even if you have all non-structural changes, but the dollar amount total for the changes exceeds $35,000, you will need to use the full 203K loan.
Once you have a list of the desired changes you want to make to a home and you have contractor bids and time commitments, a lender can help you determine which loan is right for you. It is usually pretty straightforward based on the type of work being done and the amount of money it will cost. Keep in mind that whether you use the full 203K or the streamlined version, you will need to hire and pay for a loan consultant to get through the process. The loan consultant has a lesser degree of involvement in the streamlined version, but his input and assistance is still required in order to get fully approved for this FHA loan program. Because it is an FHA program, however, you can look forward to easy to meet guidelines and flexibility when it comes to qualifying for the loan.