The FHA 203K loan is a great opportunity to either purchase a home that needs fixing up or to fix up your own home while staying on a strict budget. Because this loan program offers flexible guidelines and low down payment requirements, it is easy for the average borrower to qualify for, allowing him to create the home of his dreams without having to save up thousands of dollars on his own. The options to fix up or completely remodel your home are endless. In order to figure out the limit on what you can borrow, you will have to consider two distinct factors: the FHA loan limits in your particular area, the changes you want to make, and the type of 203K you use.
The FHA Loan Limits
Determining the FHA loan limits in your area is the least complicated component of how much you can borrow with a 203K loan. The answer is found on the FHA website, under the FHA Mortgage Limits page found here. On this page, you will enter the following information:
- FHA loan type
- 2016 as the year
With just this little bit of information, you will be able to find out the loan limit for your area. The website breaks it down into the number of units – 1, 2, 3, or 4-unit properties, so that you know the limit for multi-units in addition to a single-family unit. They also detail the median sale price for the area so you have an idea of where you stand. This maximum loan amount is non-negotiable – you cannot go over this amount for any reason.
The Desired Changes
Once you know the loan limit for your area, you have a framework to work within. If you are purchasing a home, you will need to work the purchase price and the desired changes into that maximum loan amount. Of course, the appraised value plays a role in what you are allowed to borrow. The 203K loan works a little different than a standard purchase loan, though. Depending on the changes you are making, the appraiser will provide an as-is value before the changes as well as an anticipated value after the changes are made to help the lender determine your exact loan amount. The appraiser determines this amount based on the bids received from the contractors regarding the work to be completed. Once the final appraised value is determined, the loan amount is allowed to reach up to 110 percent of that value, assuming it falls within the loan limits for the area.
The Type of 203K
In addition to the desired changes you want to make is the type of 203K loan that you choose as there are two choices: streamline and full 203K.
- Streamline 203K – The streamline product of this FHA loan allows you to make non-structural changes to the home, such as additions, new construction, extensive repairs or rehab. You can, however, complete projects that include minor remodeling of kitchens and bathrooms, paint, bring the safety features of the home up to code, replace the siding, and update or repair the plumbing, as a few examples. If you choose the streamline version of this loan, your repair expenses cannot exceed $35,000 and they cannot require any architectural plans; there is no minimum required for this type of loan.
- Full 203K – The full version of this loan has a $5,000 minimum requirement for repairs, but does not have a maximum, with the exception of what is required for the loan amount for the area or what you qualify for given your qualifying factors. The sky is the limit regarding the types of repairs that can be done with the full loan – you can completely restructure a home as long as you have the approval of the lender after they receive the bids and architectural plans from a professional architect.
The loan limit for the 203K loan is dependent on many factors. The most important factor, of course, is your qualifying factors. The higher your credit score, the lower your debt ratio, and the more stable your employment and income are, the better your chances are of getting approved for the full amount of the changes you desire to make to your home. This loan is backed by the FHA, so it does have a great deal of flexibility, but having compensating factors to make your loan less risky is definitely a step in the right direction for approval on this type of loan.