203k Loans
An FHA 203(k) loan is government-backed and given to buyers who want to purchase a damaged or older home and repair it. Example: if you want a home that needs a new bathroom and kitchen, a 203(k) lender provides the money to buy (or refinance) the house plus the funds for the renovations.
The loan often also includes an up-to-20% contingency reserve in case the remodel costs more than estimated, and a provision for up to about six months of mortgage payments so you can live elsewhere during the remodel.
203k Loan Characteristics
Finances both the purchase (or refinance) and the renovation in a single mortgage
FHA-backed, accessible to borrowers with lower credit scores or smaller down payments
Two types: Standard 203(k) for major renovations, Limited 203(k) for smaller repairs
Covers structural work, modernization, and energy-efficiency upgrades
Requires FHA-approved contractors and pre-approved renovation plans
Payments based on the total of purchase price plus estimated renovation costs
Can increase a home's value through otherwise-unaffordable improvements
More complex and slower than a standard mortgage due to required inspections and approvals
5) Conventional loans offer options for fixed or adjustable interest rates
6) Conventional loans can be used to purchase a variety of property types, including single-family homes, multi-unit properties, and condominiums
7) Conventional loans do not require mortgage insurance if the borrower puts down at least 20% of the purchase price
8) Conventional loans offer options for refinancing, including cash-out refinancing and rate-and-term refinancing, which can help borrowers lower their monthly mortgage payments or access equity in their home.
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