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FHA 203k Renovation Mortgages – The Pros and Cons

Everybody who’s looking to buy a home should at least consider a FHA 203k renovation mortgage. But I’m not going to lie — it isn’t for everyone. As with just about anything else, there are advantages and disadvantages. For borrowers with certain needs, it’s a godsend. But you need to weigh the pros and cons against your individual situation, and decide whether it’s the best option for you.

Here’s a rundown:

The Pros

  • The down payment is ONLY 3.5% of the purchase price, plus the renovation cost!
  • You can finance up to six months’ worth of mortgage payments if the home is not habitable during construction.
  • Low interest rates — typically amounting to .5 percent higher than a normal FHA loan, but still much less than a construction loan.
  • You can roll both the renovation and purchase into one low, fixed-interest rate.
  • Loan amounts can be based off 110% of after-improved value. Instead of looking at what the home is worth today, we look at what it’s GOING to be worth!
  • Other than luxury items such as hot tubs and swimming pools, the list of eligible renovations is practically endless. It includes everything from paint jobs and appliances to adding another story onto a home.

The Cons

  • 203ks, just like all FHA loans, require both upfront and monthly mortgage insurance.
  • They carry related fees such as HUD inspections, title updates, etc.
  • Typically, we do not allow homeowners to do the renovation projects themselves

The Verdict…

While the FHA 203k does carry some additional costs, it also provides some great features that make the program worth a look whether it’s for your first home, or for your latest home. Just remember that it’s for primary residences only. Ask your loan officer for more information, and keep in mind that AnnieMac Renovation Lending makes a specialty of FHA 203Ks.

Written by Jeff Onofrio, Director of Renovation Lending at AnnieMac Home Mortgage, who specializes in the FHA 203k program.  He not only originates these loans personally, but also oversees the division that handles all renovation loans for his company. He draws on that experience to write informational material designed to help clients better understand the FHA 203k program.  You can reach out to him any time at jonofrio@annie-mac.com or 888-680-RENO (7366). 

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