Wrap Remodeling Costs Into Your Purchase or Refinancing Loan

By Michele Lerner
Mortgage Credit Problems Columnist

FHA loans have become the most popular with home buyers since they require a low down payment of 3.5%. Even borrowers looking for a bad credit mortgage may be able to qualify for an FHA loan because lenders tend to be more lenient with credit scores and debt-to-income ratios. The government has tightened FHA loan requirements a little in 2010, so that borrowers with a credit score of 580 or less must make a down payment of 10% or more to obtain a loan approval. Generally, borrowers need a credit score of 620 and above to qualify for an FHA loan, and some lenders require a higher credit score than that.

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Borrowers interested in an FHA 203(k) loan to make home improvements or repairs when they purchase a home will need to meet the same requirements as other FHA loan applicants. In addition, FHA loan limits, which vary by location, will apply.

Features of FHA 203(k) loans

  • Can be used for a refinance or a purchase loan.
  • Must be used for home improvements that increase the livability of a home, such as replacing kitchen counters and appliances, renovating a bathroom and replacing or repairing heating and air conditioning systems. Luxury items such as a swimming pool or hot tub are not eligible.
  • Improvements must cost a minimum of $5,000.
  • An appraisal will be made based on the "as-is" value of the home and the cost of the improvements.
  • Work must begin within 30 days and be completed within six months.

Homeowners interested in refinancing and improving the value of their home, along with home buyers, should consider the option of an FHA loan program that can wrap all their costs into one mortgage.



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