The FHA 203k Limited is an easy loan program to include cosmetic upgrades to a property, such as flooring, paint, energy efficient additions, or a kitchen remodel.
Formerly known as the FHA 203k Streamlined, the 203k Limited is the most popular among real estate agents and buyers because this program allows for a renovation budget up to $35,000 without requiring many of the extra steps for draw inspections and consultant write-ups.
The 203k Limited is designed for cosmetic upgrades to the property, such as new paint, flooring, kitchen cabinets and energy efficient windows. A lot of experienced 203k lenders will add the 203k Limited option to any traditionally approved FHA loan just to help their borrowers get a truly upgraded home, especially if they are purchasing a property that is older than 5 years old.
The FHA 203k Limited rehab loan has a 10-20% reserve budget to cover
surprises, but it does not require a HUD consultant to be involved in
the construction process.
The FHA 203k Limited loan is a perfect option for the quick cosmetic work a property will need t freshen it up and make it your home.
What are the main renovation loan types? The main renovation loan types are the FHA 203K, which comes in multiple flavors. You have the Full K, which is also known as the Consultant K. You have the Limited 203K, and you have the Fannie Mae Homestyle. And lastly, the new one that’s really hitting the market right now, is the VA Renovation loan. All of these renovation loans, have specific intricacies of what things are allowed to be done in each. Which we will go into a little bit further. With the FHA 203K Limited program, formerly known as the Streamline, you’re able to have a budget of up to $35,000. This $35,000 budget is actually more or less a budget somewhere between 30 and $32,000 because you do have to build in the contingency reserve which is 10 to 20% of the renovation budget to make sure and take care of cost overruns and then any other renovation related fees that are built into the loan. So those fees along with the renovation budget, up to that 30 to $32,000 will get you up to that $35,000. In order to continue and stay within that limited 203K, the work must be non-structural in nature. So nothing when it comes to working on foundations or working when it comes to moving walls that are load bearing. Things like that are gonna be a problem. As long as you are staying to the cosmetic nature of repairs such as, let’s say painting, carpeting, appliances, minor remodeling. You can actually get done a septic system and wells in the Limited 203K. There are a large number of items that are available. This is a sampling of these but please reach out to your loan officer who’ll be able to give you a better idea of exactly what you can do within the Limited K. Also, on the FHA 203K Limited, the loan limits allow you to go up to the county loan limit, as designated by FHA. They are county specific. There is a floor and there is also a maximum. So depending upon your area, you will have your conforming loan limits, and then you’ll also have your high balance loan limits. Just check on these before you start looking into the product. Sometimes they may not change for a few years, but typically they change every year. You can look up those loan limits by doing a quick Google search. HUD FHA loan limits, or we’ll put a link here below, and you’ll be able to check those loan limits out for your specific county. The other part of the Limited K is you’re not required to use a HUD consultant on this product. The HUD consultant is only required when we’re going into the full 203K. However, doing K’s for as long as I have, I would recommend, that even though you may be doing a Limited 203K, I would recommend getting a HUD consultant to at least do a feasibility study. A HUD consultant can bring a lot of value if you have the right one and it could also help you to head off any potential issues. So to spend a couple extra hundred dollars to protect yourself makes a lot of sense and I would highly recommend it. Eligible property types. On a 203K Limited you are able to do basically, almost any type of property. One to four unit property. We can do mixed-use properties. We can also do manufactured homes. We can do modular homes. Sometimes some of the unique properties can be a problem. Such as log homes and things along those lines, but typically, when to comes to anything that is outside of the norm type property, definitely reach out to your loan officer and ask them for a little bit of insight. And also another good reason to speak with a HUD consultant, even if it is a Limited, because they may be able to give you some guidance from that perspective as well. Eligible occupancy types: FHA 203K, whether it’s the Limited, the Full, any of the FHA produts, it is an owner-occupied property. One of the things I will say is though, if you are looking at buying a multi-unit property, you can kinda consider yourself an investor because of the fact that you could live in one of the units and then rent out any of the additional units up to four units which will allow you to be able to create income and potentially live in the property for free. That is a great feature of the 203K and one of the things that we also talk about is house hacking and we’ll get into another one, another video on that here shortly. But again, the eligible property, excuse me, occupancy types, is gonna be primary residences only. Basic credit approval. Depending upon the company you’re working with, typical credit scores that we see are gonna people who have about a 640 or higher credit score. Now, there are many companies that I do know of as well, that will go down to 620. There are some that’ll go down to 600. And I do know some that’ll actually go down to a 580. So definitely look into each company and ask them what their credit requirements are. Just because somebody is able to do it down to a 580 please make sure that you really get with a company that has the experience to be able to do these products because these products are definitely take a little bit more and we wanna make sure you have a successful experience and one that you’re gonna wanna tell your friends about so that their willing to consider doing a 203K as well. Listen, thank you so much guys. I really appreciate you being here today on this podcast and this vlog, Renovate This.