Three FAQs About Renovation Loans // Interest Rates, Appraisals & Credit Scores!

#mortgage #homebuying #renovationloans #203k #fhamortgage

What is the difference in interest rate between an FHA 203(b) loan and an FHA 203(k) loan?

FHA 203(k) loans typically have a higher interest rate compared to FHA 203(b) loans. The FHA 203(k) loan, which includes additional risk due to the funding of property rehabilitation or repairs, generally results in lenders charging a slightly higher interest rate to compensate for the increased risk and the complexity of managing a construction loan. Typically the interest rate for a FHA 203(k) loan will be about ¾ to 1% higher than the standard FHA loan.

The FHA 203(b) loan is the standard FHA loan for purchasing or refinancing a primary residence and usually carries lower interest rates since it involves less risk and no rehabilitation components.

Does the FHA 203(k) loan require two appraisals?

Yes and no. An FHA 203(k) loan technically requires two separate appraisals: an "as-is" appraisal and an "after-improved" appraisal. The "as-is" appraisal provides the current value of the property in its existing condition, while the "after-improved" appraisal estimates the property's value based on a hypothetical condition that the planned repairs and improvements have been completed. However, these “two” appraisals are usually in the same appraisal report and completed by the same appraisal. The potential home buyer would also not be charged for two separate appraisals.

What is the minimum credit score for an FHA 203(k) loan?

Technically you can qualify for FHA loans with a credit score all the way down to 500. However, these minimum credit score requirements can vary widely from lender to lender. It’s generally a good rule of thumb to try and get your credit score to 640 or better if you’re planning on using an FHA 203(k) loan or any kind of renovation loan.

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