Enter your e-mail address and password below.


Forgot your password? New User? Register Now.
   ARTICLE   |   From Scotsman Guide Residential Edition   |   February 2013

Renovation Revolution

Increase your business by exploring the 203(k) niche

Many mortgage brokers and originators have noticed a growing number of cash buyers for residential real estate. These sales often involve distressed properties that require a significant amount of repair to be considered for conventional financing. Cash buyers typically purchase a property at below-market value and then put additional money into addressing the property’s required repairs before selling it at a profit.

For most homebuyers, however, paying cash for a property and then spending additional money on improvements simply isn’t an option. That said, mortgage brokers and originators should be aware of certain financing alternatives that are available to borrowers interested in getting a loan and then having additional funds to make repairs to their new homes. Namely, originators should be familiar with the 203(k) renovation loan from the Federal Housing Administration (FHA).

Having a thorough understanding of the FHA’s 203(k) product is especially important in light of the many borrowers who don’t seem to be aware of how they can benefit from this type of loan. That’s why the process of identifying, evaluating and buying a distressed property with a renovation loan requires the right kind of assistance from the right kind of mortgage professional.

With all of that in mind, mortgage brokers and originators who want to learn more about 203(k) loans should begin by knowing the basics. There are two common types of 203(k) loans from the FHA for borrowers to choose from:

  • The Standard 203(k): This program allows borrowers to purchase or refinance their homes and include the cost to renovate it in the same loan. The standard 203(k) enables borrowers to make a wide range of improvements, including structural changes and additions to the building’s footprint. Consumers can borrow against their homes for as much as 110 percent of the homes’ future value. The required improvements should be completed within 180 days of funding.
  • The Streamlined 203(k): Flexible credit qualifying permits homebuyers to finance as much as an additional $35,000 into their mortgages without staged draws to improve or upgrade their homes. With these loans, borrowers can tap into cash to pay for property repairs and improvements, and they can complete minor nonstructural repairs.

When working with 203(k) loans, mortgage professionals should be ready to field a multitude of questions from their consumers. Some of the most common questions typically will pertain to 203(k) qualification requirements, so it’s a good idea to keep yourself current in this respect. Here are some of the FHA’s general guidelines for 203(k) loans:

  • Borrowers should pass the FHA’s standard underwriting guidelines.
  • Borrowers should have a downpayment of 3.5 percent — i.e., they should have a 96.5 percent loan-to-value (LTV) ratio.
  • Borrowers should have a minimum credit score of 640.
  • Borrowers should ensure that the loan amount and LTV are based on the property’s improved appraisal value.
  • Borrowers should ensure that all repairs are completed after the loan closes. The Streamlined 203(k) allows for a maximum of $35,000 in repairs, while the Standard 203(k) can allow for even greater funds, depending on a variety of factors.

When working with any rehabilitation loan, mortgage professionals should be certain that their clients realize that the process of renovating a home begins long before contractors begin working. By educating your borrowers, you can help them understand — and acquire — exactly the loan they’ve been looking for, while also gaining their trust and growing your business. 


Fins A Lender Post a Loan
Residential Find a Lender Commercial Find a Lender
Scotsman Guide Digital Magazine

Related Articles



© 2019 Scotsman Guide Media. All Rights Reserved.  Terms of Use  |  Privacy Policy