The FHA 203 (k) loan is sometimes called an FHA construction loan and is a federally insured mortgage for homeowners looking to do renovations or new buyers looking to rehabilitate a fixer-upper. While a rehab loan can take longer to get the paperwork done and approved, there are significant benefits such as lower down payments, lower interest rates, and lower creditworthiness requirements. Determining the best rehab loans for 2020 involves examining individual skill requirements, down payments required, and the history and reputation of the bank or lender.
We know you’re wondering which rehab loan is the best, so we’ll get into that in a moment. The best rehab loan for mediocre credit scores comes from LoanDepot, which we will talk about in more detail later in this post. We also consider the best rehab loan for a short credit history (BNC National Bank) and the best rehab loan for very low credit scores (Carrington Mortgage).
We also discuss in more detail what exactly a rehab loan is, how you should choose one, and suggest other best rehab loans for your situation.
We have created a scoring model that allows you to compare apples rehab loans to apples so that you can choose the best lender for your specific situation. This method, called SimpleScore, deals with benefits. soft and hard credit checks; Customer satisfaction; Product variety; and fees. We’ll go into more detail on how to get our SimpleScore at the end of this post.
Current mortgage rates
According to Bankrate’s latest survey of the country’s largest mortgage lenders, these include the current average refinancing rates for 30-year, 15-year fixed and 5/1 refinancing rates for adjustable-rate mortgages (ARM).
|30 years fixed rate||3.050%||3,270%|
|30-year FHA rate||2,850%||3,700%|
|30-year VA rate||2,660%||2.840%|
|30-year jumbo rate||3.070%||3.170%|
|20-year fixed price||2.950%||3.150%|
|15-year fixed price||2,350%||2,650%|
|15-year fixed jumbo rate||2,350%||2,420%|
|5/1 ARM rate||3.150%||3.990%|
|7/1 ARM rate||3.180%||3.880%|
|7/1 ARM jumbo rate||3,360%||3.850%|
|10/1 ARM rate||3.420%||4.090%|
Price data from 5/11/2021
The 6 best 203 (k) loans of 2021
The Best Rehab Loans of 2021
|Lender||Minimum credit score||Minimum deposit||BBB rating|
|BNC National Bank||620||3%||A +|
|Caliber home loan||620||3%||A-|
|New American funding||580 (possibly lower)||3.5%||A +|
|Carrington Mortgage||500||Not revealed||A +|
|Wintrust mortgages||620||3%||A +|
What is a rehab loan?
The FHA 203 (k) loan is a federally insured product designed to help a homeowner or buyer rehabilitate and renovate a home. While the loans are insured by the government, they are still offered by traditional banks and lenders. Because of the insured aspect, banks and lenders can usually offer much better interest rates, ask for lower down payments, and approve those with significantly poorer credit scores.
The loan essentially bundles your existing mortgage and rehab funds into one refinanced loan. Because of this, FHA 203 (k) loans can also be used to purchase a home that needs renovation. This gives the homebuyer sufficient funds to make the purchase as well as additional funds to complete the rehabs. Note that the same guidelines for rehab projects for existing homes also apply to buying new homes.
While the 203 (k) loan sounds like a dream, there are some caveats that you need to be aware of. First, the loan usually comes with a monthly mortgage premium, upfront cost, and possibly an additional origination fee. In other words, the 203 (k) is not free money and still carries some of the fees you paid when you first bought your home.
In addition, there are restrictions on what the loan can cover, how quickly you need to do renovations, and how you do things (health and safety regulations). The bottom line is, instead of using another type of loan or saving money on the project, you should take the time to ensure that the FHA 203 (k) is a good fit for your home projects.
How should I choose the right rehab loan?
Choosing the right rehab loan begins with choosing the right type of loan. There are two types of FHA 203 (k) loans to choose from – the standard loan option and the limited loan option. If you want to do rehab with a value of $ 35,000 or less, you should choose the limited option, sometimes referred to as the optimized version. For anything larger, you should use the standard plan. In addition, the restricted option requires that the house be habitable throughout the process and that the type of work that can be done be limited.
Once you have decided on a type of loan, it is time to choose a lender. Choosing the right lender depends on your personal financial situation. Make sure you are aware of your current credit history and the size of your payments before you do any lender shopping. From there, compare interest rates, down payments, terms, and whatever other aspects you would consider on a traditional loan.