203k Rehab Loans – True or False

Here are some common concerns and questions that I often hear from home buyers planning to use the 203-k rehabilitation loan.  Remember that this loan is an FHA loan and adheres to the same guidelines. The only difference is the fact that you will have funds to renovate the property to your liking.

• Rehabilitation cost or amounts are limited to $35,000.

False: The streamline 203k loan is limited to $35,000; the full 203k, which we also do, is not limited at all.  You may borrow as much as needed for your rehabiliation project, as long as the total loan amount does not exceed FHA loan limits.

• The rates are much higher than a conventional or a regular FHA program.

False: Interest rates for the 203K loan are marginally higher than conventional and regular FHA loans. Once your rehabilitation is complete, you may be able to refinance to a lower rate.

• I need a lot of cash in the bank to do this loan with all the rehabilitation work.

False: You need enough cash for the down payment and closing costs.

• I don’t need high credit scores.

True: A credit score of 620 or above will qualify for the program for most lenders.

• I only need a 3.5% down payment.

True: In most cases 3.5% of the loan amount is all that is needed, and it may be lower with some properties (refinances and HUD REO purchases).

• The program is not for first time home buyers.

False: There is no criteria for this.  You can be a first time home buyer or buying your 5th home.

• The program is being discontinued.

False: There are no plans to stop this loan.

• I can only use this on a single family home.

False: The loan can be used on multi-unit properties (up to 4-units), townhomes and condos. In some cases the property can contain commercial units.

• It takes months and months to close on the loan.

False: The average loan takes 45 to 60-days to close (at least it does with Ardain Mortgage).