In this blog, we will cover and discuss refinancing from a $203,000 FHA loan to a lower rate mortgage. ATHthe parent company of FHA, offers $203,000 FHA loan programs that are acquisition and construction loans in one closing and one loan. The biggest advantage of a $203,000 FHA loan is that, unlike others construction mortgagesthe buyer only needs a deposit of 3.5% of the after-improved value of the property. Most other construction loans require the owner to purchase the property and will only lend 70-80% of the loan against the value of the construction project.
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Refinancing Case Scenario After $203,000 FHA Loan
For example, here is a case scenario:
- if a buyer were to purchase a $100,000 property
- needs an additional $100,000 construction budget
- once the property is fully rehabilitated, it is valued at $200,000
- with a $203,000 FHA loan, the home buyer will only need a 3.5% down payment on the $200,000 or $7,000 down payment.
- FHA 203k loans are perfect for home buyers looking to purchase a remodel or foreclosure home with a major need for rehabilitation.
How FHA 203k Loan Programs Work
The owner can rehab the house to their standards and choose and, in a sense, it feels a bit like a new construction house. FHA 203k loans are becoming more and more popular. The entire process is streamlined because there is not a lot of paperwork involved in getting approved, processed, underwritten, and funded for an FHA 203k loan.
Two Types of FHA 203k Renovation Loans
There are two types of FHA 203k loan programs:
- The FHA 203k Loan Streamline Rehab
- And the full standard FHA 203k rehab loan program
Refinance FHA 203k loan to other low rate mortgage refinancing options
Many borrowers can refinance after the FHA 203k loan to another mortgage program. FHA 203k loans are considered higher risk loans, so mortgage rates are higher than traditional FHA loans. Additionally, FHA 203k loans come with an annual FHA mortgage insurance premium. Mortgage rates are higher than regular and conventional FHA loans, borrowers are recommended to refinance after the FHA 203k loan after project completion.
FHA 203k Streamlines Rehab Loans
FHA 203k Streamline Rehab loans are limited to a maximum construction budget of $35,000. With an FHA 203k Streamline Rehab loan, homeowners cannot make any structural changes to their existing homes. Homeowners cannot make additions to their existing home.
Type of Work Homeowners Can Do with FHA 203k Loans
Homeowners can perform any type of home renovation, such as the following:
- bathroom and kitchen renovation
- basement renovation
- attic renovation
- new floors
- paint
- carpentry
- household appliances
- exterior such as new siding, new roof, new windows, new gutters/soffits/fascia
- other types of home improvements such as mold remediation, termite removal or others
FHA 203k Streamlined Loans are a great mortgage program for buyers interested in purchasing a remodel or foreclosure home. Or purchase a home that could not be financed through traditional mortgage programs because it is not habitable.
Full Standard FHA 203,000 Loans
The second type of FHA loan is the standard full $203,000 FHA loan program. With a standard FHA renovation loan of $203,000, there is no construction budget. Owners can make structural changes as well as room additions or extensions to the existing property. Homeowners can complete a complete gut rehab with the FHA 203,000 Full Standard Loan Program. Destruction and reconstruction on existing foundations are authorized. The FHA 203k Comprehensive Loan Program is a great mortgage program for the creative buyer who wants to purchase a remodel or foreclosure home and customize the home to their needs.
Qualification for FHA 203k Loans
Mortgage lenders consider FHA 203k loans to be riskier loans than traditional FHA loans. Higher risk leads to higher mortgage rates. Mortgage rates on FHA 203k loans are higher than traditional FHA loans by at least 0.50% to 0.75%. Again, the lower the borrower’s credit scores, the higher the mortgage rates. For home buyers considering getting a $203,000 FHA loan, the best advice I can give is to contact us at 800-900-8569 or text us for a quicker response. Or email us at gcho@gustancho.com. We can help you maximize your credit scores so you can get the lowest mortgage rates possible on an FHA 203k loan.
HUD Guidelines on FHA 203k Mortgage Loans
Unlike most other lenders, Gustan Cho Associates does not have an overlay on FHA 203k renovation loans: the minimum credit score to qualify for an FHA 203k loan is 580. All other HUD guidelines follow. apply with regard to the waiting period after bankruptcy, seizure and debt. to income ratios. There is a minimum two-year waiting period after discharge from Chapter 7 bankruptcy to qualify for an FHA 203k loan. There is a mandatory three-year waiting period after foreclosure, deed in lieu of foreclosure, and short sale.
HUD Debt-to-Income Ratio Guidelines on FHA Loans
The maximum debt-to-income ratio allowed for borrowers with a credit score below 620 depends on the AUS’s findings. The debt-to-income ratio for getting approved/eligible based on the results of the automated underwriting system is normally 46.9% on the front end and 56.9% on the back end. For borrowers with credit scores of at least 620 or higher, the maximum debt-to-income ratio cap is 46.9% up front and 56.9% debt-to-income ratio down the line. Unlike conventional loans, FHA loans have a maximum initial debt-to-income ratio cap of no more than 46.9% for AUS approval. Borrowers may qualify for an FHA 203k loan with outstanding collection accounts and deductions.
HUD Guidelines on Chargebacks and Medical Collections
Tax refunds and medical collections are completely exempt and are not taken into account with us since we do not have overlays. However, for non-medical collection accounts with a total outstanding balance of $2,000 or more, 5% of the outstanding collection account balance will be used to calculate debt-to-income ratios. This remains true even if borrowers do not have to repay outstanding non-medical collections accounts. Borrowers with large outstanding collection account balances where the 5% will affect debt-to-income ratios may enter into a written payment agreement with the creditor and/or collection agency. This monthly payment agreement will be used in place of the 5% of the outstanding collection account balance to calculate debt-to-income ratios.
Refinance after a $203,000 FHA loan with FHA Streamline
Since $203,000 FHA loans have higher mortgage rates than traditional FHA loans, borrowers should consider refinancing their $203,000 FHA loan after the project is completed, either through a traditional FHA loan or through another mortgage program. The loan originator can determine whether refinancing after the $203,000 FHA loan would provide a net tangible benefit. It would need to be analyzed how much this will reduce monthly payments as well as how much money homeowners could save.
FHA Accelerated Refinancing Streamlined
FHA Streamline is a great loan program offered by HUD. It allows a borrower with a current FHA loan to refinance their FHA loan with another new FHA loan at a lower rate with an expedited mortgage process. No assessment or income documents are required. Mortgage rates are based on borrowers’ credit scores. 203k loans have much higher mortgage rates than traditional FHA loans. Once homeowners have completed their renovations, it’s worth seeing if an FHA Streamline saves them money. Gustan Cho Associates are experts in FHA Streamline refinances.
Start the Pre-Approval Process on FHA 203k Loans
Renovation home buyers looking for an FHA 203k Rehab mortgage lender with no overlays, contact us at Gustan Cho Associates at 800-900-8569 or text us for a quicker response. Or email us at gcho@gustancho.com. We are available 7 days a week to answer all your questions and issue a solid pre-approval letter.