Great question!
Here’s how an FHA renovation loan works:
– It’s a type of mortgage that lets you buy a home that needs some work and finance the renovations with the home price.
– You can choose between two types of FHA renovation loans: limited and standard. The limited one is for minor repairs or upgrades, while the standard one is for major structural changes.
– The amount you can borrow for renovations depends on the value of the home and the FHA loan limits in your area. You can’t use the loan for luxury improvements like a pool or an outdoor kitchen.
– You need to meet the FHA eligibility requirements, such as having a credit score of at least 600 and a down payment of 3.5%. You also need to pay mortgage insurance premiums.
– You need to work with an FHA-approved lender and a licensed contractor who will oversee the renovation project. The contractor will provide a detailed estimate of the work and the costs, which will be reviewed by an FHA appraiser.
– The loan will be disbursed in stages, depending on the progress of the work. You’ll have to pay interest on the full loan amount from the start, even if some of it is held in escrow until the work is done.
– You’ll have to follow the FHA guidelines and timelines for completing the work, which may vary depending on the type and extent of the renovations. You’ll also have to get inspections and approvals along the way.
Sources:
FHA 203(k) Loan: Renovation Mortgage Guidelines – NerdWallet
203(k) Rehabilitation Mortgage Insurance – HUD.gov
