A Guide to FHA 203(b) Loans
The Difference Between FHA 203(b) Vs. 203(k) Loans
The FHA offers two types of 203 mortgages: 203(b) and 203(k). FHA 203(b) loans help borrowers buy homes in relatively good condition. On the other hand, if the home sustains major damage and requires tens of thousands of dollars to repair, a 203(k) loan would be appropriate, as it can provide financing for the home and home improvement work. home.
Because 203(b) and 203(k) loans serve different purposes, their ratings have separate standards. Therefore, it’s a good idea for homebuyers looking for an FHA loan to understand the differences so they can research the one that fits their situation.
FHA 203(b) Rating
An appraisal involves a government-licensed housing professional estimating the value of a home. Although FHA 203(b) loan appraisals can be more stringent than conventional appraisals, they are generally used to identify issues that should be addressed to prepare for a move-in.
The FHA loan program prioritizes homebuyer safety, especially if they are going to be first-time homeowners. For example, a faulty furnace or broken handrail may need to be repaired after the appraisal for FHA to issue a loan for the property. However, defects or severe damage to the home can cause the appraisal to fail, which means the home is ineligible for a 203(b) loan.
These issues, as discussed below, can cause borrowers to look for another home instead. That said, if you’re committed to buying a specific home that needs major repairs, applying for an FHA 203(k) loan with a separate appraisal may be your route to financing.
FHA 203(k) Rating
FHA 203(b) mortgages are for homes that families can move into after closing. On the other hand, homes in need of major repairs before moving in require a different appraisal and type of loan. The FHA 203(k) loan combines the value of the home and the price of necessary repairs so that the buyer can afford to repair and buy the home.
Possible projects covered by 203(k) loans include:
- Electrical repair and wiring
- Water damage or flooding issues
- problematic foundation
- Excessive damage to sidewalks or driveway
- Damage caused by ants, termites and other pests
- Lead Hazard Posed by Chipped or Peeling Paint in Homes Built Before January 1, 1979
- Extremely dirty crawl spaces
- Device failure
- Unfinished renovations
- Rotten or damaged countertops
- bare studs
Homebuyers seeking help from the FHA to finance a repairman can apply for a 203(k). The loan can help buyers solve the problems threatening those who move into the house. If you’re looking for a home to buy with a 203(b) loan but have found a home with significant damage, upgrading to a 203(k) loan can help turn it into a livable home. However, Rocket Mortgage® does not offer FHA 203(k) loans.