mortgage

FHA offers home renovation help

When work is complete, the borrower provides a letter and a HUD-approved cost consultant conducts an evaluation. Such consultants can be found through a lender or via the FHA website.

Certain types of projects may be ineligible for 203(k) financing, says John Thomas, a certified mortgage planner with Primary Residential Mortgage, Inc. in Newark, Del.

"No major structural repairs can be undertaken with a Streamline 203(k) such as putting on a new addition or fixing a cracked foundation," Thomas says. "But you can repair the roof, do plumbing repairs and even add an attached garage."

Full 203(k) loans allow almost any home improvement as long as it adds value to the home. Such projects include structural additions, finishing a basement or remodeling a kitchen. Luxury items such as a swimming pool or a hot tub cannot be financed with a 203(k) loan.

Qualifying for a 203(k)

To qualify for a 203(k) loan, you'll need decent credit. Most lenders require a credit score of 620 and above for an FHA loan, says Cook.

Like all FHA loans, 203(k) loans require a 3.5 percent down payment (based on the total loan amount, including the purchase and renovation costs) and an upfront mortgage insurance payment of 1.75 percent of the total loan amount. This can be wrapped into the financing.

Borrowers also pay a monthly mortgage insurance premium based on the loan-to-value and length of the mortgage.

"Interest rates on 203(k) loans are slightly higher than other FHA loans (about 0.2 percent to 0.5 percent higher) because there's a greater risk for the lender until the work is actually completed on the property," Thomas says.

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