The FHA 203(k) renovation loan is one of those mortgage programs that should get a lot more attention but don’t. Why? Maybe because fewer lenders offer the program and for lenders who aren’t familiar with this special loan they can often try and steer someone into another direction such as taking a higher cost equity loan or second mortgage. The 203(k) renovation loan is used to finance a primary residence on a property that requires some degree of improvements or remodeling.

For example, a home is listed at a below market value and with certain repairs the home would be worth so much more. Say a home needs a new kitchen as the appliances are too old and no longer working. The FHA loan allows borrowers to borrow the funds needed to not only finance the purchase but provide needed funds for a brand new kitchen all in one mortgage at competitive rates.

Or, the loan can be used for a bath remodel, repair or replace an outdoor deck or patio. If the HVAC systems don’t work you can borrow the funds needed to repair or replace the heating and cooling systems. What types of properties qualify for the FHA 203(k) renovation loan?

Remember the loan can only be used to finance a home in which you intend to live. Eligible properties include:

• An existing single family home that is at least one year old
• A duplex, triplex or fourplex is you intend to occupy one of the units and at least one year old
• A complete tear down or an existing tear down with the original foundation
• You can move an existing home to another location and make the improvements at the new site.
• Condos are eligible for the FHA 203(k) loan

All other FHA guidelines apply to the program such as adhering to the maximum FHA loan limits for the area where the property is located. Minimum credit scores and a credit report will be reviewed and the lender will verify income, employment and sufficient cash to close on the transaction. There are several other requirements such as a minimum amount you must borrow, $5,000, reserved for needed repairs. Make sure you’re working with a lender experienced with the FHA 203(k) loan as the process is a bit different compared to a traditional purchase money mortgage.