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.

Our SimpleScore

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).

product interest rate APR
30 years fixed rate3.050%3,270%
30-year FHA rate2,850%3,700%
30-year VA rate2,660%2.840%
30-year jumbo rate3.070%3.170%
20-year fixed price2.950%3.150%
15-year fixed price2,350%2,650%
15-year fixed jumbo rate2,350%2,420%
5/1 ARM rate3.150%3.990%
7/1 ARM rate3.180%3.880%
7/1 ARM jumbo rate3,360%3.850%
10/1 ARM rate3.420%4.090%

Price data from 5/11/2021

The 6 best 203 (k) loans of 2021

The Best Rehab Loans of 2021

LenderMinimum credit scoreMinimum depositBBB rating
BNC National Bank6203%A +
LoanDepot5803%A
Caliber home loan6203%A-
New American funding580 (possibly lower)3.5%A +
Carrington Mortgage500Not revealedA +
Wintrust mortgages6203%A +

Best for short credit ratings – BNC National Bank

BNC National Bank is known for its short credit lending business. This can help ensure that people who are rejected under traditional guidelines receive approval.

SimpleScore

3.5 / 5.0

SimpleScore BNC National Bank 3.5

Customer satisfaction N / A

Those looking to secure an FHA 203 (k) loan with limited credit should check with the BNC National Bank. The bank has been known to use alternative credit information to check your creditworthiness, including things that are not normally shown on your bank statement.

Note: The lender information included (min. Credit score and min. Down payment) relates to a conventional loan. For more information on rehab mortgage loans, visit the lender’s website.

Best for mediocre credit scores – Loan deposit

You need to contact the lender for specific information. However, lower credit scores will most likely be required to make a larger down payment.

One of the great advantages of FHA 203 (k) loans is that they can be made available to borrowers with less than excellent credit as it is a government insured product. While no one but the bank can guarantee approval, creditDepot is promoting offering rehab loans to those with credit scores through the mid-500s.

Note: The lender information included (min. Credit score and min. Down payment) relates to a conventional loan. For more information on rehab mortgage loans, visit the lender’s website.

Best for easy application – caliber

Some of the rehab loan options on this list require you to contact a branch to apply.

For those looking to streamline the process from home, this is not ideal. Caliber Home Loans, on the other hand, offers several online tools to help you speed up and simplify the process.

Note: The lender information included (min. Credit score and min. Down payment) relates to a conventional loan. For more information on rehab mortgage loans, visit the lender’s website.

Best for Complicated Loans – New American funding

Best for complicated loans as you can speak to one person and discuss your personal situation.

SimpleScore

4th / 5.0

SimpleScore New American funding 4th

Customer satisfaction N / A

Are you someone with less than perfect credit but the result of something you can explain? Unfortunately, most lenders use automated systems that are incapable of entering your personal arguments. However, New American Funding uses a manual underwriting process to assess your creditworthiness. This means that you can talk to a real person about your situation. It does not guarantee approval, but it can be a necessary path in certain situations.

Best for very low credit scores – Carrington Mortgage Service

Bad credit is usually a deal breaker when it comes to applying for credit. However, some lenders are willing to take the risk and offer credit to those with less favorable credit.

SimpleScore

3.2 / 5.0

SimpleScore Carrington Mortgage Service 3.2

Carrington Mortgage is known to accept borrowers with credit scores in their low 500s. Be aware that you will most likely get a worse interest rate than other lenders, and that you will most likely owe a larger down payment, but this may be your only route to approval.

Note: The lender information included (min. Credit score and min. Down payment) relates to a conventional loan. For more information on rehab mortgage loans, visit the lender’s website.

Best for specialized loans and condominiums – Wintrust mortgage

If you are looking for specialized care from experts who live and breathe FHA loans, you should check out Wintrust Mortgages.

SimpleScore

3.7 / 5.0

SimpleScore Wintrust mortgage 3.7

Customer satisfaction N / A

Many banks and lenders specialize in more traditional mortgage loans, and FHA loans are usually an afterthought. However, Wintrust is known to specialize in rehab loans and all types of loans for condominium owners.

Note: The lender information included (min. Credit score and min. Down payment) relates to a conventional loan. For more information on rehab mortgage loans, visit the lender’s website.

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.

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