If you’re buying a home in need of some work, you can get the financing for both the purchase and renovation through an FHA 203(k) loan, also known as a rehab loan. This type of FHA loan keeps things simple with one loan, one set of closing costs and one monthly mortgage payment. Here is Bankrate’s guide to the best 203(k) rehab mortgage lenders in 2022.
To determine the best FHA 203(k) rehab mortgage lenders, Bankrate evaluated lenders based on several criteria, including affordability (APR, discounts and/or incentives); scope of loan offerings; customer reviews; and online capabilities.
Best FHA 203(k) rehab mortgage lenders
|Loan products||Purchase and refinance, conventional, jumbo, FHA, VA, USDA, renovation loans, interest-only|
|Credit requirements||620 for conventional and FHA loans; 580 for VA loans|
|Highlight||Guaranteed Rate offers homebuyers a convenient digital experience coupled with live support from a human.|
|Loan products||Purchase and refinance; conventional, jumbo, FHA, VA, USDA, home equity loan, construction and renovation loans|
|Credit requirements||620 for conventional loans; 700 for jumbo loans; 580 for FHA loans|
|Highlight||Flagstar Bank offers grants and down payment assistance programs to help make your dreams of homeownership a reality.|
|Loan products||Purchase and refinance; conventional, jumbo, FHA, VA, construction and renovation loans|
|Credit requirements||620 for conventional loans and VA loans; 700 for jumbo loans; 580 for FHA loans|
|Highlight||LoanDepot is a direct mortgage lender that offers competitive rates on a mix of products.|
Fairway Independent Mortgage Corporation
|Loan products||Purchase and refinance; conventional, jumbo, FHA, VA, USDA; construction and renovation loans, reverse mortgage, physician loan|
|Highlight||Among its offerings, Fairway Independent Mortgage Corporation has programs that cater to low- and moderate-income borrowers.|
Homebridge Financial Services
|Loan products||Purchase and refinance; conventional, jumbo, FHA, VA, USDA, construction and renovation loans, investment property, reverse mortgage|
|Credit requirements||640 for conventional loans; 680-700 for jumbo loans; 580 for FHA loans, VA loans and USDA loans|
|Highlight||With Homebridge, borrowers receive personalized support from local loan originators throughout the financing process.|
What is an FHA 203(k) rehab loan?
The FHA 203(k) loan is a type of mortgage backed by the Federal Housing Administration for homebuyers looking to renovate the home they’re purchasing. 203(k) loans tend to come with more competitive rates, and require a smaller down payment and lower credit score compared to other kinds of loans. Like other FHA mortgages, 203(k) loans require you to pay a mortgage insurance premium with your monthly loan payment.
How does a 203(k) loan work?
A 203(k) loan bundles your mortgage and renovation funds into one loan. Once you close on the loan, a portion of the loan proceeds is paid to the seller of the home, and the remaining balance goes toward the renovations.
To be eligible for a 203(k) loan, the home needs to be at least one year old and renovation costs need to be a minimum of $5,000. In addition, the amount borrowed can’t be more than the area’s FHA loan limit, the home’s value after the renovation or its value before renovation, whichever is lowest.
You also can’t use a 203(k) loan for just any project. You’ll need to comply with the requirements for eligible renovations, which include replacing the roof and floors, enhancing the home for accessibility reasons or making energy efficiency improvements.
Who qualifies for a 203(k) loan?
If you’re interested in a 203(k) loan, you’ll need to meet the same requirements for a standard FHA loan:
- A minimum credit score of 580
- A debt-to-income (DTI) ratio of 50 percent or less (individual lenders may have higher or lower requirements)
- The home is your primary residence and passes inspection once renovations are completed
Summary: Best FHA 203(k) rehab mortgage lenders
- Guaranteed Rate
- Flagstar Bank
- Fairway Independent Mortgage Corporation
- Homebridge Financial Services
With additional reporting by Allison Martin