If you’re buying a home that needs work, you can get financing for the purchase and renovation with an FHA 203(k) loan, also known as a rehabilitation loan. This type of FHA loan keeps things simple with one loan, one set of closing costs, and one monthly mortgage payment. Here’s Bankrate’s guide to the best 203(k) rehab mortgage lenders in 2022.
Methodology
To determine the best FHA 203(k) rehab mortgage lenders, Bankrate evaluated lenders based on several criteria, including affordability (APR, rebates, and/or incentives); scope of loan offers; Customer reviews; and online capabilities.
Best FHA 203(k) Rehab Mortgage Lenders
Guaranteed rate
Guaranteed Rate Mortgage Review
| 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 |
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| The inconvenients |
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| Highlight | Rate Guarantee offers homebuyers a convenient digital experience paired with live human assistance. |
Flagstar Bank
Flagstar Bank Mortgage Review
| Loan products | Purchase and refinancing; conventional, jumbo, FHA, VA, USDA, home equity loans, construction and renovation loans |
| Credit requirements | 620 for conventional loans; 700 for jumbo loans; 580 for FHA loans |
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| The inconvenients |
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| Highlight | Flagstar Bank offers grants and down payment assistance programs to help you realize your dreams of home ownership. |
LoanDeposit
LoanDepot Mortgage Review
| Loan products | Purchase and refinancing; 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 |
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| The inconvenients |
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| Highlight | LoanDepot is a direct mortgage lender offering competitive rates on a range of products. |
Fairway Independent Mortgage Company
Fairway Independent Mortgage Company Review
| Loan products | Purchase and refinancing; conventional, jumbo, FHA, VA, USDA; construction and renovation loans, reverse mortgage, doctor loan |
| Credit requirements | Unavailable |
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| Highlight | Among its offerings, Fairway Independent Mortgage Corporation offers programs that cater to low- and moderate-income borrowers. |
Homebridge Financial Services
Homebridge Financial Services Mortgage Review
| Loan products | Purchase and refinancing; 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 |
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| The inconvenients |
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| Highlight | With Homebridge, borrowers benefit from 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 loan backed by the Federal Housing Administration for buyers who are looking to renovate the home they are buying. 203(k) loans tend to have more competitive rates and require a smaller down payment and lower credit score compared to other types 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 consolidates your mortgage and home improvement funds into one loan. Once you take out the loan, a portion of the loan proceeds goes to the seller of the home and the remaining balance goes towards renovations.
To qualify for a 203(k) loan, the home must be at least one year old and the renovation costs must be at least $5,000. Additionally, the amount borrowed cannot exceed the area’s FHA loan limit, the home’s value after renovation, or its value before renovation, whichever is lower.
You also cannot use a 203(k) loan for just any project. You will need to comply with the requirements for qualifying renovations, which include replacing the roof and floors, improving the house for accessibility reasons, or improving energy efficiency.
Who qualifies for a 203(k) loan?
If you are interested in a 203(k) loan, you will need to meet the same requirements for a standard FHA loan:
- A minimum credit score of 580
- A debt to income ratio (DTI) of 50% or less (individual lenders may have higher or lower requirements)
- The house is your primary residence and passes inspection once the renovations are complete
Summary: Best FHA 203(k) Rehab Mortgage Lenders
With additional reporting by Allison Martin
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