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Home » Renovation Loan » FHA 203k Renovation Loan » Guideline

FHA 203k Renovation Loans.

3.50% Down, 6% Seller Closing Credit Allowed

Flexible credit score requirements, with credit scores down to 580

Guidelines

Calculators

FHA 203k Renovation Loans Program Guidelines

Loan Purpose

Purchase
Refinance: Cash out

Credit Profile

580 minimum middle credit score for Accept/Eligible findings
620 minimum middle credit score for Accept/Eligible and Refer/Manual automated underwriting findings
No foreclosure or short sale within three years of contract ratification date
No Chapter 7 bankruptcy discharge within two year of contract ratification date
No mortgage delinquency in the last 12 months for a FHA 203k Limited Refinance

Parameters of Repairs Budget:

Minimum $5,000
Limited FHA 203k Loan up to $75,000
Standard FHA 203k Loan no limit

Construction Time

Must start within 30 days of the loan closing
No more than nine (9) months of closing when using the Streamline/Limited 203k and twelve (12) months of closing when using the Standard 203k

Contingency Escrow Reserve

10% to 20% of the Contractor proposal, based on the following:
- 10% minimum to cover any unexpected costs arising from the project
- 15% to 20% minimum if utilities are not operational at time of Appraisal inspection
- Up to 20% if evidence of termite damage
If unused the contingency escrow reserve will be used to reduce the outstanding mortgage amount after settlement or make additional improvements to the property
Based on the Underwriter discretion a Contingency Reserve is not required for the Limited 203k

Draws

For the Limited 203k Loan the Contractor is paid as follows:
- At settlement the following may be paid:
  - Permit Fees
  - 50% of the base bid amount to defray the cost of material
- Up to two draws permitted
For the Standard 203k Loan the Contractor is paid as follows:
- At settlement the following may be paid:
  - Permit Fees
- Up to five draws permitted

General Contractors

Only 1 General Contractor (“GC”) allowed
GC can’t be related to the borrower(s) or an employee/employer of the borrowers
GC must be insured, licensed, and bonded
GC must provide a detailed contractor estimate itemizing all repairs that are to be completed with costs broken down by material and labor and if applicable permit costs

FHA HUD Consultant

Required when using the Standard FHA 203k Loan. The HUD Consultant will:
- Charge a fee of $400 to $1,000+ depending on the dollar amount of the project
- Prepares a Feasibility Study
- Inspects the property and work completion prior to each draw request
- Reviews any proposed changes to the Work Write-Up and prepares change orders

Loan Amount

Maximum loan limit is established by The Department of Housing and Urban Development and is determined by the County where the property is located and by the household units. Click here for loan limits in your area
Base Loan amount is determined by the purchase price of the house, plus total renovation budget, less the down payment (minimum 3.50% down required). The Base Loan can’t exceed maximum HUD loan limits
Total Loan amount is the purchase price, less the down payment, plus the FHA 1.75% Upfront Mortgage Insurance Premium (UFMIP)

Mortgage Insurance Premiums

Upfront Mortgage Insurance Premium (UFMIP) 1.75% of the Base Loan Amount
Annual Mortgage Insurance Premium (MIP) required
MIP Calculations are as follows:

Mortgage Term of More Than 15 Years
Base Loan Amount	LTV	MIP (bps)	Duration
Less than or equal to $625,500	≤ 90.00%	80	11 years
	> 90.00% but ≤ 95.00%	80	Mortgage term
	95.00% > 95.00%	85	Mortgage term
Greater than $625,500	≤ 90.00%	100	11 years
	> 90.00% but ≤ 95.00%	100	Mortgage term
	> 95.00%	105	Mortgage term
Mortgage Term of Less Than or Equal to 15 Years
Less than or equal to $625,500	≤ 90.00%	45	11 years
Less than or equal to $625,500	> 90.00%	70	Mortgage term
Greater than $625,500	≤ 78.00%	45	11 years
	> 78.00% but ≤ 90.00%	70	11 years
	> 90.00%	95	Mortgage term

Ratios

As determined by Automated Underwriting System or AUS with DTI ratios up to 56%. Requires a Desktop Underwriter “Approved/Eligible” or Loan Prospector “Accept” findings
Manual Underwrite acceptable with DTI ratios up to 31% front end and 43% back end

Property Type

Owner-occupied properties 1-2 units
Existing attached and detached single-family residences
New construction with permanent financing only
PUD’s (i.e. Townhomes)
Condo-units must be FHA approved project
Log cabin homes, provided Appraisal Report lists other comparable log cabin homes that have recently sold in the area

Occupancy

Owner occupied only
Non-occupant co-signers permitted

Property Valuation

The appraisal order can’t be processed without contractor proposal being obtained
Appraiser to provide two sets of valuation, which are the “as-is” and “after-completed value” appraisal value
On purchase transactions, combined purchase price and renovation budget can be 110% of “after-completed value”
Final inspection must be completed by the FHA 203k Appraiser once property is 100% complete

Documentation

All loans must be fully documented per Agency Guidelines
For Self Employed borrowers, in addition to Agency Guidelines, two years of the tax returns (personal and business) along with a year-to-date profit and loss (unaudited)

Down Payment/Closing Costs

3.50% down payment required with a minimum 580 middle credit score
Seller contribution toward buyers closing costs and escrows up to 6% of the purchase price
Closing cost help can come from flexible sources including family member gifts and loans against a 401k retirement account

Terms

Amortization period: 15, 20, 25, 30-year fixed rate
Adjustable Rate Mortgage