A Beginner’s Guide to 203(k) Loans

We’ve been talking a lot lately about home renovations; specifically, we’ve been talking about how to finance your home repairs and improvements.

If you’ve been following our blog, you likely understand the basics of HomeStyle Renovation Mortgages from Fannie Mae, the different ways to structure construction loans, and how to use renovation loans properly.

But there is still a lot to discuss when it comes to loans for renovation and home repairs, and one of the most important topics is 203(k) loans from the Federal Housing Administration.

Financing Your Home Renovation with a 203(k) Loan

What is a 203(k) Loan?

203(k) loans are loans backed by the government through the Federal Housing Administration (FHA), which is an office of the Department of Housing and Urban Development (HUD). These loans are offered to home buyers looking to purchase a house that is either old or damaged and needs significant repairs to make it livable. For example, if you are looking to purchase a home that needs a new kitchen, the 203(k) program could loan you money for the purchase of the home as well as the cost of remodeling the kitchen.

The loans will generally include as much as 20% in contingency reserve, which is held aside incase the project costs more than predicted. The loan also can include the equivalent of up to six months of housing payments so you can live somewhere else while the renovations are being completed.

Benefits of 203(k)

The obvious benefit is that you have the financial cushion to not only buy a home, but also to complete expensive-yet-necessary repairs, which you might not be able to afford otherwise. The down payment requirements are generally minimal, and you can likely get a good interest rate on your purchase. Interest rates will certainly vary, but you can generally count on affordable terms.

What are the Downsides?

Unfortunately, not all properties will qualify, and there are limits on the amount of money you can borrow. Also, applying for the loan can be more time-consuming and complex, and you may even need to hire an independent consultant to prepare for the application, which will need to include a detailed proposal of the required renovations.

Eligible Properties

Only certain properties are eligible for 203(k) loans, but you will generally find that most moderately-priced single family homes will qualify for the program. To be eligible, it must be between one and four units and at least one year old; if the property was completed six months ago, it is not eligible. If a home has been torn down but some of the structure remains, it will be eligible for 203(k) financing. Also, if you are looking to move a home to a new location, you can use 203(k) loans to finance the project.

While co-ops are not eligible for financing through the program, some condos will be able to receive financing.

Eligible Projects

There are many projects that qualify for financing under the 203(k) program. From structural changes and repairs to improvements that enhance the value of the property, you will find that almost all projects will qualify.

Eligible projects under 203(k) include:

There are many projects that are eligible for 203(k) financing.
  • Structural repairs
  • Improvements to the functionality of the home
  • Modernization changes
  • Removal of safety hazards
  • Aesthetic improvements
  • Well digging and installation
  • Updates to plumbing
  • New roof and gutters
  • Floor replacement and floor treatments
  • Landscaping
  • Disability-access renovations (ramps, rails, etc.)

 

Eligible projects are not limited to the above list. Contact a mortgage expert to see if your specific project will qualify. (Hint: there’s a great chance it will!)

However, the program will not cover projects that are considered luxury improvements, such as the construction of pools or tennis courts, and it won’t cover changes that are not a permanent part of the property, such as buying shades, decorations, or furniture. For example, the loan will likely cover installation of new light fixtures, but not new lamps.

How Much Money Can You Borrow with 203(k)?

It’s the million-dollar questions: how much money can you borrow from the 203(k) program? (Okay, maybe it’s more like the hundred-thousand-dollar question.) There are many factors involved, but you will generally find that the loan will cover a reasonably-priced home plus basic repairs and renovations.

The amount will depend on the type of loan you get, including whether it is a purchase or a refinance.

If the loan is for a regular repair, without the purchase of a house, you will have to borrow a minimum of $5,000. In other words, if you want to borrow less than $5,000, you’ll have to look elsewhere.

With a regular FHA 203(k) loan, the maximum amount you can borrow is the lesser of two numbers. The first is FHA mortgage limits, which usually change annually and differ from area to area. (San Diego, for example, has different limits than St. Paul, Minnesota.) The second number is the LTV ratio multiplied through various factors. We won’t drag you down with the math (which includes factors like “after-improved values,” “financeable mortgage fees,” and “adjusted as-is values”); just know that whichever number is lowest is the amount you can borrow through 203(k).

Limited 203(k) Loans

There is also a subsection of the program that is called Limited 203(k) mortgages. This program has a component that allows you to make energy-reducing home improvements. Offering up to $35,000 in financing, this program allows homeowners to refinance their mortgage and borrow money that can be used to make improvements to a house. If you are considering home improvements, including pre-sale improvements, ask your lender about Limited 203(k) options.

Get Reliable Information on 203(k) and Other Renovation Loans

If you want to learn more about 203(k) loans from the FHA, contact San Diego Purchase Loans today. We’ll walk you through the process of getting the right loan for your remodeling project.

Whether you are buying a home that needs improvements or want an affordable renovation loan for your current property, we’ll make sure you understand all the details for every option, allowing you to make an informed, confident decision!

Testimonials

A very responsible and experienced professional with his highly effective team

I really enjoyed working with Chad Baker and the rest of the team. This was our first time buying a home in California and we started with unnecessary assumptions based on our previous experience as home-owners in a different state. Chad and his team were available throughout the whole process, explaining the state differences, answering all our phone calls and emails quickly and directly, and providing detailed weekly status reports so that all parties including agents knew exactly where we were in the process. Chad was very experienced and provided customized loan products for us to consider, which definitely facilitated our transaction. I recommend the Chad Baker team! ”

As a first time home buyer, I wasn’t sure what to really expect, but Chad and his team made the process very clear and easy. Once the process was over, they didn’t just vanish either. They kept in touch and looked for opportunities that may benefit me. A couple years later, they found me a great refinance opportunity that saved me a lot of money! Once again, the process is long and grueling, but Chad and his team made it as painless as could be. Any barrier that I encountered, they found a quick solution to make it happen. Mortgages are a huge commitment and I wouldn’t pick any other team to help me make the right decisions.”

“Chad and his team got me funded in less than 30 days, completing a deal that another broker fumbled around with for almost 90 days. Effective, efficient and excellent communication skills. Outstanding professionalism.”

“I must say I was extremely impressed with the professionalism and quick response from Chad Baker & his entire team. I screened over 5 lenders before selecting the Baker Team & boy am I happy customer. It’s evident that customer service is a priority for these folks.”

Outstanding experience

I was referred to Chad by my Realtor for a purchase of a new house. The experience with Chad and the team (I mainly worked with Juliann) was nothing short of outstanding. From start to finish there were always quick to respond and when needed, notify me of any new documentation that was required. There were very helpful explaining to me the pros and cons of different financing options as well as some other loan related issues, such as termite clearance outside the purchase contact and septic tank certification process. Overall, very knowledgeable and processional team. Loan preapproval was done in a single day and loan documents were ready for signing in 21 days, which was 9 days ahead of schedule. That never happened to me before.

“Chad – Your team has been nothing short of amazing. Juliann has aggressively followed-up with escrow and gone out of her way to make sure things get done on schedule. Matt and I can’t express to you enough how much we’ve appreciated all of your counsel at the beginning of the process and her execution to see it through to close. As always, appreciate everything that you guys have done to see this through.”

Chad was very personable. His staff was very suportive.
I had the pleasure of working with Chads team. Everything went as planned. I was very pleased. I still want to take them to dinner. I am completely enjoying my new home”

“Juliann – Thank you very much for your patience and help with everything. I can say 150% that we could not have gotten through this without you. I have been through this process before a few times BUT never have received this type of care/attention. This process is intense and you managed to humanize this life changing experience for us – rather than being a loan number. If you or Home Point ever need an official recommendation from us, you can count us in.”

“Hi Juliann and Chad, I wanted to take a moment and thank you guys for what would have been impossible for us to do without you. We wouldn’t have our keys in hand if it had not been for your help in navigating the financing, and Juliann’s perseverance in getting the rest of the players in the transaction to deliver. Out of everything, our interaction with your office has been a highlight – and your customer service has been beyond everything we’ve experienced in the real estate industry. Is there a way we can provide any reviews, ratings, testimonials, or other statements that can express to your potential future customers how much you guys do to make the customer’s life easy? Please let us know how we can share our great experience with you to the rest of the public. Whether we refinance this under a VA, or get in a bigger/better house in a few years, we’re not going to go anywhere else for financing. We are customers of yours as long as you are in business. Thanks again for getting us in a house!”

I HIGHLY recommend Chad and his team.

Chad and The Chad Baker team really helped me from start to finish with my loan process. They were extremely responsive and provided me updates on a daily basis. I had a few personal issues that they helped me work through so I could get the best loan program and best rate. Very knowledgeable about the industry, rates and trends.I HIGHLY recommend Chad and his team. I’m happy to offer a reference upon request. Please ask Chad for my contact information.”

Great Job Chad Baker Team & Homepoint!
I was very impressed with the professionalism and quick response times from Chad Baker & his team during the entire process. I would highly recommend Home Point for mortgage needs. Great Job! ”

“Chad and his group made the mortgage approval process smooth and understandable. Multiple updates and explanations during the process kept me informed of progress. Chad also provided great advice on other home services, in particular an insurance company that saved me thousands of dollars a year on home and auto insurance.”

Incredible Turnaround and Stellar Customer Service. Chad and his team helped us get into our first home here in San Diego. When we first started the process we were skeptical it would even be worth applying. But Chad and his team walked us through the whole lending process with integrity and know how that surpassed our expectations. After helping us to pull together our pre-qualification, he and his team stayed at the ready. Before we even walked up to a home we were seriously interested in he had the data we needed over to us and our realtor. After finding the home we wanted to place a bid on, we were able to place a bid with a matter of a few hours. Then, after having our offer accepted, he had our loan package completed and the keys in our hands in under a month — I am pretty sure it was less than. Like I said, incredibly fast and professional turnaround. if you are looking for a motivated lender who can walk you though every detail and have your back every step of the way, Chad and his team at HomePoint Financial is your best decision. Recommend them highly!”

I was amazed how quickly Chad was able to knocked out our refinance!
I highly recommend Chad he & his team did an incredible job! I had 3 others I was working with, including a Credit Union. Chad was able to offer me a lower rate with no fees! Based on the other 3 top financial bids I had for this refinance. ”

“Hey Chad – thank you so much to you in particular as well as your team. It’s been a real pleasure working with someone who’s as responsive and helpful throughout the process, as you’ve been. We really appreciate what you’ve done. ”

Chad Baker and his team are amazing!

My husband and I found Chad through an article he had written. Every aspect of working with Chad and his team was exceptional. From our initial phone call where he explained the many options we had, to advice he gave in dealing with somewhat challenging sellers, and closing our loan ahead of schedule, the loan process with Chad and his team went very smoothly. I especially appreciated the one-on one guidance from Juliann, who really made me feel like I was her only client. I look forward to working with Chad and his team again and would highly recommend them to anyone looking for a mortgage.

“Chad, it was a pleasure working with you. Your loan was smooth, speedy, and we were kept well informed. I will make sure to prioritize offers where you are the loan officer as I know they run smoothly.”

“Chad and his team are exactly who you want handling the financing of your home. Whether it be a new purchase or refinance, he and his team are one of the most professional, responsive group of people I’ve worked with. Buying a home can be very stressful and Chad and his team took all of the necessary steps to make the process as painless and as quick as possible. They are extremely knowledgeable, organized and have great follow through. You won’t ever be left wondering what the next steps are. I highly recommend him and will use him in all of our real estate transactions moving forward.”

Outstanding experience

I was referred to Chad by my Realtor for a purchase of a new house. The experience with Chad and the team (I mainly worked with Juliann) was nothing short of outstanding. From start to finish there were always quick to respond and when needed, notify me of any new documentation that was required. There were very helpful explaining to me the pros and cons of different financing options as well as some other loan related issues, such as termite clearance outside the purchase contact and septic tank certification process. Overall, very knowledgeable and processional team. Loan preapproval was done in a single day and loan documents were ready for signing in 21 days, which was 9 days ahead of schedule. That never happened to me before.

Excellent service!. Recently purchased a property in Northern San Diego County. Chad and his team were recommended to me to check out. The rate he acquired was a full point & a half better than the Broker I have been using for years. His team was exceptional and did great follow through. Definitely 5 star service!”

I was amazed how quickly Chad was able to knocked out our refinance!. I highly recommend Chad he & his team did an incredible job! I had 3 others I was working with, including a Credit Union. Chad was able to offer me a lower rate with no fees! Based on the other 3 top financial bids I had for this refinance. ”

“Chad, Juliann and the team were great in helping me get through this process. It is not an easy process but they stayed with me the entire time and I am truly grateful. ”

Thank you Chad and Team

Chad and his team have been a pleasure to work with. I’m a 3rd time home owner. Wish I had known Chad and team a lot sooner. He made my 3rd home purchase very easy. There were a lot of moving pieces and they handled with professionalism and care. Juliann was a pleasure to work with too. The whole team made it possible for us to move into our dream home. Thanks you Chad and Team!

Awesome Team

Chad and his team was awesome throughout the entire process. They made things easy and smooth, and able to answer any questions at anytime. By far the best experience with a lending team yet. Great job!”

I highly recommend Chad Baker. He does a phenomenal job and won’t trauma you or your clients. He has a whole team that works on the loans. And all the team members are great. He has a person that can translate for your clients that are Chinese. He is as good of a loan officer as you are an agent, and that is what you want when referring clients to a lender.

“Thank you for all the hard work (even on weekends!) you and your team have devoted to seeing this through in a very efficient manner. It’s been an easy process for me and, you and your team have been a delight to work with.”

highly recommend Chad and his team. They were always available for any questions, concerns etc. we had. The process to close the loan went super fast. Chad and his team always went above and beyond. The customer service was the best! I will definitely recommend to all Thank you again for everything!

When looking for a house, we had couple recommendations for a lender. After talking with all the lenders, many were difficult to work with and couldn’t get it done as quickly as we needed. I was referred to Chad Baker’s team and I am glad we did. Not only did they get the things done quickly for us, they were very easily to get ahold of. It wasn’t rare to get a response within 15 minutes whenever an email was sent. I could not express how friendly and outgoing this team is. And on top of that, they came back with the best offer for us amongst all the other brokers. I am glad I worked with these guys. If you are looking for a lender…MAKE SURE TO CALL CHAD BAKER AND TEAM!!! Thanks Chad for all your hard work. Next time we buy another house I am calling you first!

“Chad Baker is THE BEST, most professional, understanding, HONEST person I’ve ever worked in the mortgage industry. He knows exactly what he’s talking about, will never promise something he can’t deliver, and will bend over backwards to get you what you need. I had a very unique problem qualifying and every other mortgage company I worked with assured me from the beginning that they could get me financed, and then it would all fall apart once we hit underwriting. Chad understood my circumstance from the beginning and patiently explained every step of the way. I can’t thank you enough Chad! Juliann has been great keeping me updated and making sure that everything comes together in a timely fashion. She also appreciates my sense of humor, which gives personality to a boring funding process. Thanks Juliann! I HIGHLY recommend Home Point and if I ever buy another home, will absolutely use them again.”

“I wanted to reach out and tell you both Thank You for working so hard on my loan. I really appreciate how much effort you both put in to make it happen! Top notch, one of the best I have ever seen in the business.”

An ‘A’ Team!
We just closed on our second transaction with the Chad Baker team. They are very well organized and I can attest that they are looking out for their clients’ best needs. A special shout-out for Juliann B. who was our guide through the painful loan process. We found Juliann to be very responsive, kind, patient, and diligent in getting both our refis closed well.”

“We’re loving our new place and we’re very pleased with how smoothly everything went through closing. Thanks for keeping us up to date on the possibility of refinancing at a lower rate; we trust your judgement as far as waiting until the rate is around 5% lower before we refinance. We’re very interested in pursuing that if rates drop to that level. Thanks so much for all your help and personal attention!”

“Chad and his team were fantastic. They were incredibly responsive to us and our needs. Chad laid out several refinance options for us, and was very supportive when we decided on the option we felt was best for our family. Chad and his team worked our deal and got our mortgage funded incredibly fast, with excellent service and even took the time to thank us personally once we funded. I can’t recommend Chad enough!”

Chad and his team were Awesome to work with! I was referred to Chad by a good friend of mine. I was very impressed with the professionalism and quick response times from Chad Baker & his team during the entire process. I screened over 3 lenders before selecting the Chad Baker Team and I’m confident I made the right choice. It’s obvious that customer service is their #1 priority and it shows. I highly recommend Chad if you have lending needs. ”

EXCEPTIONAL, SUPER EXCEPTIONAL! The most professional, accountable and committed mortgage service we have ever worked with. With numerous experiences in buying and refinancing homes, by far Chad Baker and his team remain at the top of our list. We feel very blessed to have located such a committed company who serve their clients with an exceptional first “first class” mindset.

Thank you, Chad. You have been amazingly responsive to all my questions, and you have a great staff assisting you. Thanks so much for all your help!

“This is the second time that I have worked with Chad (home purchase & refinance). He has become my subject matter expert and someone I depend on for all finance needs related to our home and real estate investments. My favorite things about Chad are his depth of knowledge, responsiveness, honesty and the great service he provides. I have referred countless friends and family of mine to work with him for no other reason than I know that he will treat them well and equip them for the best possible outcome. Chad will add tremendous value to any real estate transaction that you have and I am grateful to have him as a resource.”

“Chad and his entire team were over the top amazing, professional, and attentive throughout the entire home loan/buying process. I could not have asked for a better team to have on my side through what could be one of the most challenging and stressful processes one experiences. From the first conversation I had with Chad, I felt comfortable with him. He helped guide us through the process without ever once making us feel uneasy, unimportant, or uninformed. I never felt silly or stupid for asking the same questions over and over until I fully understood what we were getting into, or until something made total sense to me. The home loan world is fast paced, overwhelming, and confusing, and Chad and his team held our hands and helped us to feel comfortable and confident about our choices. He and his team were always there for us day or evenings, weekdays, or weekend and never made you feel like you were a bother if you had a burning question you had to get answered at 8pm Saturday night. I will use them again and again, and suggest them to any friend, family, or acquaintance. Seriously, they are rock stars. They work hard for you to get you into your dream home, we could not be happier with their hard work, dedication, and kindness.”

“Chad and The Chad Baker team really helped me from start to finish with my loan process. They were extremely responsive and provided me updates on a daily basis. I had a few personal issues that they helped me work through so I could get the best loan program and best rate. Very knowledgeable about the industry, rates and trends. I HIGHLY recommend Chad and his team. I’m happy to offer a reference upon request. Please ask Chad for my contact information.”

Chad and his team are fantastic!

Chad and his team assisted me with the financing of my condo. Every member of Chad’s team was extremely professional, highly competent, super responsive, and friendly. They realize that financing a home can be a stressful experience and they do their best to alleviate that stress by keeping you in the loop on everything. They were great about giving me frequent updates on the status of my application. In addition, they happily answered my questions. At one point, when I felt like I was pestering Chad with questions, his response was a friendly, “keep them coming!” And he meant it!!! Likewise, Maria and Karina were just a pleasure to work with as well! This team is like a fine-tuned machine. Thank you so much for all of your help!!!