People have been asking me recently if FHA offers any home equity loan programs for home repairs and improvements.  Even in a recession, making home improvements is still important to most homeowners and the FHA 203K loan provides the opportunity for homeowners to finance home improvements.  We are seeing a home remodeling trend because homeowners would rather not spend their money upgrading to a more expansive home.  In years past borrowers had used second mortgage loans to finance home improvements, but qualifying for an equity loan is difficult. In most cases to qualify for a second mortgage a borrower would need a combine loan to value under 80%.  That means that even after the new home improvement loan the borrower would have 20% home equity left in their property.  In today’s housing market equity is hard to find. 

A popular alternative to a home equity line of credit is the FHA 203K.  A few years ago HUD rolled out a new type of FHA refinance.  The 203K enables FHA borrowers to get access to funds for home rehabilitation to pay for the proposed home improvements.

Like FHA loan programs, the FHA 203k loan has its limitations and is subject to FHA loan limits is the lowest of these three calculations:

          Borrowers existing mortgage on the property plus rehabilitation and certain closing costs.

          Present property value plus rehabilitation costs.

          110% of the improved value multiplied by FHA’s 96.5% maximum loan-to-value ratio.

FHA mortgage rates are subject to change and the borrower is subject to FHA loan requirements.