True or False

Here are some common concerns and questions often raised by Realtors and prospective home buyers planning to use the 203k rehabilitation loan.  Remember that this loan is an FHA loan and adheres to the same general credit-qualifying underwriting guidelines. The only difference is the fact that you will have funds to renovate the property to your liking.

  • I can only go up to $35,000 on the rehabilitation cost. False: You can go up to any amount as long as the total loan amount does not exceed FHA loan limits.
  • I must choose a contractor from HUD’s list.  False:  HUD does not have a list of approved contractors.  However, the contractor in every transaction is vetted by the lender.  Essentially, the contractor must be properly licensed, fully insured, have a history of past work, and be able to finance the supplies needed to start work.
  • The program is only for First Time Home Buyers. False: Any home buyer may qualify as long as the subject property will be a primary residence.
  • The rates are much higher than a conventional or a regular FHA program. False: Interest rates for the 203k loan are higher than conventional and regular FHA loans, but not significantly. However after construction the rate can be lowered to the going rate and in many cases refinanced into a conventional mortgage loan.
  • I need a lot of cash in the bank to do this loan with all the rehabilitation work. False: You need enough cash for the down payment and closing costs.
  • I don’t need high credit scores. True: A credit score of 640 or above will qualify for the program for most lenders.
  • I only need a 3.5% down payment. True: In most cases 3.5% of the loan amount is all that is needed and may be lower with some properties.
  • The program is being discontinued. False!!!  You wouldn’t be reading this website if that was the case.
  • I can only use this on a single family home. False: The loan can also be used on multi-unit properties (up to 4 units), townhouses and condos.
  • It takes months and months to close on the loan. False: The average loan takes 45 to 60 days to close.