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An FHA 203(k) mortgage rolls the selling price of a home and the cost of needed repairs into one loan. A minimum credit score of 500 is required to qualify, with down payments as low as 3.5%.
You can also use an FHA 203(k) loan to refinance your current mortgage to pay for renovations. Finding an affordable, move-in-ready home in a competitive market can be a big challenge. When there are more buyers than sellers in a particular area, you may find yourself in a situation where bidding wars are pushing prices out of the range you're able to pay.
One way to solve this problem is to find a fixer-upper house in the place you want to live and finance it with an FHA 203(k) loan. What is an FHA 203(k) loan? An FHA 203(k) loan is a government-backed mortgage that combines the purchase price of a house and the cost of the needed renovations into a single loan. Existing homeowners can also use an FHA 203(k) to refinance.
"It's the perfect loan for the ugly house that won't sell," says mortgage broker Kris Radermacher of Klear2Klose Team powered by Lincoln Lending Group. "It allows a buyer to go in and negotiate on a home at a lower price and get it to a higher value." There are two types of FHA 203(k) mortgages, each with different bor.