Image by Getty Images/Illustration by Bankrate
If you’re buying a home in need of some work, you can get the financing for both the purchase and renovation through an FHA 203(k) loan, also known as a rehab loan. This type of FHA loan keeps things simple with one loan, one set of closing costs and one monthly mortgage payment. Here is Bankrate’s guide to the best 203(k) rehab mortgage lenders in 2023.
Best FHA 203(k) rehab mortgage lenders
LowRates.com
LowRates.com mortgage review
| Availability | Available in 48 U.S. states (not available in GA or MA) |
| Loans offered | Conventional, jumbo, FHA, VA, USDA |
| Credit requirements | 620 for conventional loans; 700 for jumbo loans; 500 for FHA and VA loans |
| Down payment minimum | 3% for conventional loans; 3.5% for FHA loans; none for VA and USDA loans |
| Where to find | Online |
- No fees
- Can close as fast as 20 days
- Offers HELOCs and home equity loans
New American Funding
New American Funding mortgage review
| Availability | Available in all U.S. states |
| Loans offered | Conventional, jumbo, FHA, VA, USDA, fixed-rate, adjustable-rate; rate-and-term, cash-out and streamline refinancing; home equity line of credit (HELOC); investment property; flex-term; non-QM; reverse mortgages |
| Credit requirements | 620 for conventional loans |
| Down payment minimum | Undisclosed |
| Where to find | Online and in-person |
- Offers initiatives for borrowers of color
- Diverse set of loan offerings
Guaranteed Rate
Guaranteed Rate mortgage review
| Availability | Nationwide |
| Loans offered | Purchase and refinance, conventional, jumbo, FHA, VA, USDA, renovation loans, interest-only |
| Credit requirements | 620 for conventional and FHA loans; 580 for VA loans |
| Down payment minimum | Undisclosed |
| Where to find | Online and in-person |
- Over 350 locations nationwide for in-person support
- Interest rates listed online and updated daily
- Rated as a top 3 retail mortgage lender by Scotsman Guide
Flagstar Bank
Flagstar Bank mortgage review
| Availability | Available in more than two dozen states |
| Loans offered | Purchase and refinance; conventional, jumbo, FHA, VA, USDA, home equity loan, construction and renovation loans |
| Credit requirements | 620 for conventional loans; 700 for jumbo loans; 580 for FHA loans |
| Down payment minimum | Unclear for conventional loans; 3.5% for FHA loans |
| Where to find | Online and in-person |
- Offers several government-backed loan products with competitive rates
- “Destination Home” Mortgage with no down payment and flexible eligibility criteria
- Get up to $5,000 towards closing costs or your down payment with the Flagstar Gift Program
LoanDepot
LoanDepot mortgage review
| Availability | Available in all U.S. states |
| Loans offered | Purchase and refinance; conventional, jumbo, FHA, VA, construction and renovation loans |
| Credit requirements | 620 for conventional loans and VA loans; 700 for jumbo loans; 580 for FHA loans |
| Down payment minimum | Unclear for conventional loans; 3.5% for FHA loans |
| Where to find | Online and in-person |
- More than 1,700 licensed lending officers nationwide for customer support
- Accredited by the Better Business Bureau (BBB) with an A+ rating
Fairway Independent Mortgage Corporation
Fairway Independent Mortgage Corporation review
| Availability | Available in all U.S. states |
| Loans offered | Purchase and refinance; conventional, jumbo, FHA, VA, USDA; construction and renovation loans, reverse mortgage, physician loan |
| Credit requirements | Unavailable |
| Down payment minimum | 5% for conventional loans; 3.5% for FHA loans |
| Where to find | Online and in-person |
Summary: Best FHA 203(k) mortgage lenders
| Lender | Credit requirements | Down payment minimum | Bankrate review |
|---|---|---|---|
| LowRates.com | 620 for conventional loans; 700 for jumbo loans; 500 for FHA and VA loans | 3% for conventional loans; 3.5% for FHA loans; none for VA and USDA loans | LowRates.com mortgage review |
| New American Funding | 620 for conventional loans | Undisclosed | New American Funding mortgage review |
| Guaranteed Rate | 620 for conventional and FHA loans; 580 for VA loans | Undisclosed | Guaranteed Rate mortgage review |
| Flagstar Bank | 620 for conventional and FHA loans; 580 for VA loans | Unclear for conventional loans; 3.5% for FHA loans | Flagstar Bank mortgage review |
| LoanDepot | 620 for conventional loans and VA loans; 700 for jumbo loans; 580 for FHA loans | Unclear for conventional loans; 3.5% for FHA loans | LoanDepot mortgage review |
| Fairway Independent Mortgage Corporation | Unavailable | 5% for conventional loans; 3.5% for FHA loans | Fairway Independent Mortgage review |
What is an FHA 203(k) rehab loan?
The FHA 203(k) loan is a type of mortgage backed by the Federal Housing Administration (FHA) for homebuyers looking to renovate the home they’re purchasing. 203(k) loans tend to come with more competitive rates, and require a smaller down payment and lower credit score compared to other kinds of loans. Like other FHA mortgages, 203(k) loans require you to pay a mortgage insurance premium with your monthly loan payment.
How does a 203(k) loan work?
A 203(k) loan bundles your mortgage and renovation funds into one loan. Once you close on the loan, a portion of the loan proceeds is paid to the seller of the home, and the remaining balance goes toward the renovations.
To be eligible for a 203(k) loan, the home needs to be at least one year old and renovation costs need to be a minimum of $5,000. In addition, the amount borrowed can’t be more than the area’s FHA loan limit, the home’s value after the renovation or its value before renovation, whichever is lowest.
You also can’t use a 203(k) loan for just any project. You’ll need to comply with the requirements for eligible renovations, which include replacing the roof and floors, enhancing the home for accessibility reasons or making energy efficiency improvements.
Who qualifies for a 203(k) loan?
If you’re interested in a 203(k) loan, you’ll need to meet the same requirements for a standard FHA loan:
- A minimum credit score of 580
- A debt-to-income (DTI) ratio of 50 percent or less (individual lenders may have higher or lower requirements)
- The home is your primary residence and passes inspection once renovations are completed
Methodology
To determine the best FHA 203(k) rehab mortgage lenders, Bankrate evaluated lenders based on several criteria, including affordability (APR, discounts and/or incentives); scope of loan offerings; customer reviews; and online capabilities.
Source: thesimpledollar.com