FHA 203k Loan Guidelines and Requirements

FHA 203K Guidelines and Requirements

FHA 203k loan requirements and guidelines for qualifying: What buyers and homeowners should know before applying.

 

The FHA 203k loan for renovation has the same qualifying requirements as a standard FHA 203b loan which has the most flexible guidelines with minimal down payment than any other type of loan at this time.  The difference between the two is that the FHA 203K will allow for the repairs, rehab or remodeling of your home to be included into the new loan while the FHA 203B won’t.

So, what are those qualifying guidelines:

Credit and Credit Scores:

Although lower credit scores are acceptable with FHA loans most lenders will require a minimum credit score of 640.  Depending on the lender the minimum credit score can vary and exceptions could be possible.

Bankruptcy and foreclosure:

Chapter 7 is allowed if it has been 24 months after the discharge date, provided that good credit has been re-established.

If the Chapter 7 is less than 24 months (but not less than 12 months) it may be allowed provided the reason for the BK was due to extenuating circumstances.  Along with that the buyer or homeowner should be able to exhibit the ability to manage financial affairs currently and that the BK isn’t likely to recur.

Chapter 13 is allowed after 12 months of the pay-out period provided the performance has been satisfactory and customer receives court approval to enter into the mortgage transaction.

Foreclosure or Deed-in-Lieu is allowed after three years.

Court ordered judgments and tax liens must be paid.

For existing homeowners Tax liens may be included in the refinance.

Income and qualifying ratios:

The FHA 203k like all FHA loans are full documentation loans meaning proof of income is required.

Full or part time income can be counted with two years of continuous history with some exceptions for schooling, training, maternity leave etc.

Self-employed /1099 income must be stable with a two-year history.

Rental income is also acceptable

Miscellaneous income is acceptable, including child support, alimony or maintenance payments and Note income but must show a 12-month history and evidence that the income will continue for the next three years

Qualifying ratios are 31/43% which means up to 31% of your gross income ( for w-2 earners) or (net income after expenses for 1099 & self employed) can go towards the total house payment and up to 43% of your income can go to both the total house payment and other revolving & installment debts.  These ratios are bench marks but can be exceeded with an automated approval or compensating factors.

Flexible Down Payment, Source of funds and Reserves:

3.5% minimum down payment is required and can come from checking, savings or other depository accounts such as 401k’s.  Down payment and closing costs can also be a gift from relatives, significant others or cash-on-hand with paper trail.

Contributions up to 6% for closing cost can come from interested parties involved in the transaction such as the seller and cash reserves are not required on 1-2 unit properties

Well, I hope this helps in giving you a general idea on what the FHA 203k guidelines and requirements are for qualifying.  Keep in mind that each lender can have their own variation when it comes to qualifying so the sooner you get started the sooner you will know what to expect.

If you think an FHA loan is right for you then a lender who can do both the FHA 203B and FHA 203K will give you even more options and possibilities.

To contact a  FHA 203K /203B Specialist go to the 203K Mortgage Lender Directory to find a lender for your state.

Need More Info About the FHA 203k?

Contact a 203k Lender for your Area!


13 Comments

  • MAE

    Reply Reply November 1, 2013

    We had a short sale 2 1/2 years ago and were told that we do not qualify for a 203K by a lender. Is this correct? How can a bankruptcy be OK after 2 years, but a short sale is not?

    • 203K Mortgage Lender

      203K Mortgage Lender

      Reply Reply November 6, 2013

      Hi Mae

      Unfortunately, FHA Guidelines put a short-sale in the same category as a foreclosure and requires a 3-year wait period. The thought process being that, even though your Lender agreed to the short-sale, that Lender took a loss in much the same manner as they would have if the property went to foreclosure. Now, that’s not to say that a Lender won’t consider a shorter term if you have documented extenuating circumstances. Also, FHA will permit Lenders to consider a shortened wait period after a minimum 12 month positive payment history with minimum credit scores.

      Based on the time frame you mentioned the horizon is near so it’s worth inquiring with another lender on your particular situation.

      Best of luck.

  • Josh

    Reply Reply May 13, 2013

    I’ve been pre-approved for either a standard FHA loan or a 203K loan. The house that I’ve seen that we like says that it’s not eligible for the 203k. It’s a HUD home that need some small repairs — some cracking in the corners of the doors. Why are some HUD homes not eligible for 203k?

    • 203K Mortgage Lender

      Hi Josh

      On HUD homes there are properties which are “Insurable” which allow for standard FHA loans but would also include the 203k as an option. Then there are “uninsured” properties that require the buyer to use some type of rehab loan such as the 203k so it would be rare if 203k financing is not allowed. From what you described it should be doable so to make sure the 203k is not an option on your HUD home have your Real Estate agent or Loan Officer verify.

      Best of luck

  • Tonya

    Reply Reply November 18, 2011

    I was recently pre-approved for a FHA loan and found a house we like but it had roof damage and needed a water heater. The lender that I am pre-approved with told my realtor that my credit score wasn’t high enough for this type of loan. My middle score is 648 and what I’m reading online says its the same requirement as FHA. Could this be different with different lenders?

    • 203k Mortgage Lender

      203K Mortgage Lender

      Reply Reply November 25, 2011

      Tonya Asked:
      I was recently pre-approved for a FHA loan and found a house we like but it had roof damage and needed a water heater. The lender that I am pre-approved with told my realtor that my credit score wasn’t high enough for this type of loan. My middle score is 648 and what I’m reading online says its the same requirement as FHA. Could this be different with different lenders?

      203k Mortgage Lender’s Answer

      Hello Tonya,

      The answer to your question is “YES” there can be different acceptable minimum credit scores depending on the FHA / 203k lender. Typically though lenders will allow lower credit scores on standard FHA loans than FHA 203k loans but the middle credit score you mentioned (648) should be sufficient for either type of FHA loan so contact another FHA/203k loan specialist to see if you have better luck with someone else.

      Best of luck to you

  • ray hawkins

    Reply Reply August 15, 2011

    can i buy a house on a r3 lot and add two (2) additional units with a 203k loan.

    • 203k Mortgage Lender

      203K Mortgage Lender

      Reply Reply August 17, 2011

      Ray Asked:
      can i buy a house on a r3 lot and add two (2) additional units with a 203k loan.

      203K Mortgage Lender’s Answer:

      Hello Ray,

      Yes, you can add or reduce units as long as the end results are within 1 to
      4 with a 203k loan.

      Good luck.
      203K Mortgage Lender

  • Nikki

    Reply Reply June 13, 2011

    With the 203k loans can your closing cost be rolled into your loan?

    • 203k Mortgage Lender

      Nikki Asked:
      With the 203k loans can your closing cost be rolled into your loan?

      203K Mortgage Lender Answer:
      Hi Nikki,

      If it’s a 203k refinance then the closing cost can be financed into the loan but if it’s a purchase the answer is “No” but the costs associated solely on the rehab or renovation part can be.

      Hope that helped
      203K Mortgage Lender

  • Betsy

    Reply Reply March 19, 2011

    Hi,
    My husband and I are very interested in this loan, but feel we have been spinning our wheels. OUr mortgage broker told us to get a detailed estimate and to find out if our current plans are permittable by our town, before we can do anything. We got on estimate that is about 3 times the value of our home. It was very deflating to us as we truly believe this loan is THE loan that will help us with our project. We live in an 1,100 sq ft home, built in 1867 and our plan is to add 900 sq ft.
    I feel very frustrated! and want to move forward, but now I read in the requirements you say we need 3.5% of a down payment. Now even further disheartened.

    • 203k Mortgage Lender

      Betsy Asked:
      Hi,
      My husband and I are very interested in this loan, but feel we have been spinning our wheels. OUr mortgage broker told us to get a detailed estimate and to find out if our current plans are permittable by our town, before we can do anything. We got on estimate that is about 3 times the value of our home. It was very deflating to us as we truly believe this loan is THE loan that will help us with our project. We live in an 1,100 sq ft home, built in 1867 and our plan is to add 900 sq ft.
      I feel very frustrated! and want to move forward, but now I read in the requirements you say we need 3.5% of a down payment. Now even further disheartened.

      203K Mortgage Lender’s Answer:
      Hello Betsy,
      The FHA 203k loan is an option for homeowners interested in doing repairs or renovations especially those who have limited equity. If the estimate you are referring to is for the improvements then that is okay because the emphasis will be on the after improved value but if after everything is said and done and you are not within the 110% of the after improved value then your estimate on the improvements needs to be modified. As far as the 3.5% down payment that would only apply to homebuyers not homeowners when using the 203k loan to purchase a property.

      Contact one of the 203k specialists for your state on the site and good luck.

      203K Mortgage Lender

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