FHA 203k Construction Loans…well not exactly.
Some might think that a 203k loan is a construction loan but actually it isn’t. Although a 203k can be used for remodeling, renovations and repairs there is a difference between this FHA loan and a construction loan.
The main difference is that construction loans can be used to build a brand new property from the ground up on raw land. 203k loans on the other hand are only for properties that are at least one year old and that already have an existing foundation. Along with that there are loan limits that apply to FHA loans which vary depending on your area.
Once you remove those two major differences, then the 203k does have similarities to a construction loan as far as the type of work that can be done to the property as well as how contractors get paid as the work gets completed. The 203k may have some similarities, but unlike a construction loan, the 203k offers the following features that a construction loan doesn’t.
- Can be used to purchase or refinance an existing property and includes the funds needed for improvements combined
- Has a low down payment for purchases
- Has minimal equity requirements for refinances.
- Has the same current attractive interest rates like other first mortgages
- Is an all in one loan with terms up to 30 years.
If only they could come up with one loan to buy/refinance, include the improvements and pay off debts! Now that would be something. But, in the meantime 2 out of 3 aren’t bad with the 203k loan.