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FHA 203(b) and FHA 203(k) Loans
Saving up for a big down payment is a big problem for many people who want to buy a home. But that's not necessary! Homebuyers who go for an FHA 203(b) loan can take advantage of a low down payment requirement to make homeownership a reality.
What is a 203(b) FHA loan?
The FHA 203(b) loan is a popular choice for people who are buying their first home. But most people who want to buy a home as their main residence can use this mortgage product.
The main benefit is that you only have to put down a small amount. You might be able to buy a home with as little as a 3.5% down payment. This means that qualified borrowers can finance up to 96.5% of the value of their home.
The Federal Housing Administration backs and insures FHA 203(b) loans, which are a type of FHA loan. The U.S. Department of Housing and Urban Development, or HUD, is in charge of the Federal Housing Administration.
Even though this is a loan backed by the government, you will get the money from an FHA-approved lender. These lenders can give buyers mortgages with terms of 15 or 30 years, with interest rates that aren't too high and less strict credit requirements.
Congratulations! Using the information you've given, Rocket Mortgage can let you move forward with your home loan process online.
FHA 203(b) Vs. FHA 203 (k)
An FHA 203(k) loan is used to help people who want to buy a house that needs a lot of repairs or changes. On the other hand, an FHA 203(b) loan is mostly used for ready-to-live-in homes.
For a standard 203(k) loan, a home would need at least $5,000 in repairs and additions to make it safe and sound. The property must still be worth at least as much as the FHA mortgage limit for the area. So, FHA 203(k) loans are a good choice for people who want to fix up a house that could be a diamond in the rough.
Keep in mind that the FHA's Limited 203(k) program will only let you finance up to $35,000 in repairs, improvements, or upgrades, and there is no minimum amount requirement. FHA 203(k) loans are not available through Rocket Mortgage®.
All repairs must be done before the closing, but if the seller refuses, the buyer can set up an escrow account for repairs and refinance it through the FHA Limited Section 203(k) program.
An FHA 203(b) loan is one type of loan and buying program to think about if you don't want to do a lot of work to a house before you move in.
Who Can Get An FHA 203(b) Loan?
If you're thinking about getting an FHA 203(b) home loan, here's what you need to know:
- Buyers of their first home: If you are a first-time buyer, the low down payment is a big help.
- Real-estate investors: With this loan, investors can buy a property, but they have to say that it will be their main residence.
- Current owners: Even if you've bought a house before, the FHA 203(b) loan is still a good choice if you want to sell your current home and buy a new one. It will also work for people who already own a home and want to refinance it to pay for repairs.
This type of loan isn't right for you if you don't plan to live in the property, since it has to be your main home.
FHA 203(b) Requirements
To get an FHA 203(b) loan, you must follow the rules set by the Federal Housing Administration. Here are the requirements you must meet to get in:
- 5% down payment: In addition to the standard FHA requirements, single-family mortgages require a minimum down payment of 3.5%.
- 580 credit score: The FHA requires a minimum score of 500, but most lenders require a higher score to get this type of loan. Rocket Mortgage needs a credit score of at least 580.
- 43% or less DTI: Lenders look at your debt-to-income ratio to see how much else you owe and how much money you make.
- The property must be within the limits of an FHA loan: Where you live affects how much you can borrow. But as of 2022, the "floor" and "ceiling" FHA mortgage limits for one-unit properties are $420,680 and $970,800, respectively.
- Only one to four units: The building can have no more than four units. With an FHA 203(b) loan, you can buy things like single-family homes, duplexes, triplexes, and quadplexes.
- Mortgage insurance: You can pay the upfront mortgage insurance premium of 1.75 percent of the loan amount at closing, or you can add it to the loan amount. Don't forget that you'll also have to pay an annual premium.
A conventional loan has more strict requirements than an FHA 203(b) loan. Because the government says it will pay for the lender's losses if you don't pay back the loan.
But if you can't meet these requirements, you should work on getting your finances in order before you look for a home. For example, to lower your DTI, you could try to improve your credit score or pay off your debts.
FHA 203(b) Appraisal Requirements
As with any home loan, an FHA-approved appraiser will need to look at the house.
An FHA appraisal will, of course, figure out how much the house is worth. But FHA-approved appraisers also follow a certain set of steps to make sure the home meets the FHA's minimum property standards.
The minimum property standards say that the house has to be safe and healthy to live in.