Renovation Loans

Navigating through mortgage options can be complex, especially when looking at specialized loan types like FHA 203K and Conventional Renovation Loans. This comprehensive guide will delve into the unique requirements, including down payment stipulations, credit score considerations, debt-to-income ratios, and loan sizes. We also aim to answer vital questions such as the availability of down payment assistance, the number of renovation loans one can have, and options after a foreclosure, short sale, or bankruptcy.

What Are FHA 203K and Conventional Renovation Loans?

FHA 203K and Conventional Renovation Loans are designed to help you purchase and renovate a home with a single mortgage. The Federal Housing Administration backs the FHA 203K, while Conventional Renovation Loans are not government-backed, but they align with the guidelines set by Fannie Mae and Freddie Mac.

Loan Requirements

FHA 203K:

• Down Payment: Typically requires a 3.5% down payment.
• Credit Score: Generally, a credit score of at least 580 is needed.

Conventional Renovation:

• Down Payment: Usually requires a minimum of 5% down.
• Credit Score: A score of 620 or above is commonly required.

Debt to Income Ratio

FHA 203K  loan types are somewhat lenient with debt-to-income ratios, but a DTI below 56.99% is generally viewed favorably. While Conventional debt to income ratios generally need to be below 43%.

Loan Size and Limits

FHA 203K: The loan limit varies by county but is generally aligned with FHA loan limits.

Conventional Renovation:  Conventional loans conform to the limits set by the Federal Housing Finance Agency (FHFA), which is $726,200 for 2022 in most areas.

Can Renovation Loans be Used with Down Payment Assistance?

Down payment assistance programs can sometimes be combined with these renovation loans, especially with the FHA 203K, depending on the lender and state programs.

How Many Renovation Loans Can I Have?

Both loan types are typically meant for primary residences. Still, it's generally possible to have more than one loan if you’re looking to invest in multiple properties, depending on your financial profile.

Past Financial Difficulties: Foreclosure, Short Sale, Bankruptcy

FHA 203K loans generally have shorter waiting periods you'll need to wait around 2-3 years before you can qualify for an FHA loan. This is in contrast to Conventional Renovation loans which typically have to wait a specified period, often seven years for a foreclosure and four years for bankruptcy, before you can qualify again.

Whether you're leaning towards an FHA 203K or a Conventional Renovation Loan, understanding their unique requirements can aid in securing the right loan for your home renovation project.