What is an FHA Rehab Loan?

If you’re in the market for a home that’s a fixer-upper, utilizing an FHA 203(k) Rehab Loan will allow you to finance the purchase of the home, along with the renovations, through a single mortgage. These loans are also beneficial for both the borrower and the lender as they ensure a long-time loan that covers both the purchase and renovations. FHA Rehab Loans are also great in the case of federally declared natural disasters that have caused property damage.

Does the Property Need Specific Work for the Loan?

A property does not need to have hyper-specific work that needs to be completed in order to qualify for the FHA Rehab Loan. Since they are geared towards fixer-upper homes that require a lot of work to be done, they can be utilized for any projects in the home to get it up to date and modernized.

How Do You Qualify for an FHA Rehab Loan?

To qualify for an FHA 203(k) Rehab Loan, there are a few specific requirements that need to be met in order to get approved.

• Have a good, if not excellent, credit score. In order to be eligible for this type of loan, leaders need to know that you will pay them back, and having a good credit score will give you credibility for this. It’s recommended to have a FICO credit score of 580 or higher.

• Put at least 3.5% down. With a traditional loan, it’s recommended to put down up to 20% but with an FHA Rehab Loan, you can put down as little as 3.5% upfront and still be able to do the renovations to your home.

• Your debt-to-income ratio is less than 43%. To calculate your debt to income ratio, divide your total debt payment and divide it to your monthly income.

• Have mortgage insurance and proof of employment with a steady income.