An FHA 203k loan allows you to borrow money, using only one loan, for both home improvement and a home purchase. … 203k loans are guaranteed by the FHA, which means lenders take less risk when offering this loan. As a result, it’s easier to get approved (especially with a lower interest rate)
Eligibility: owner/occupants and nonprofit organizations can use FHA 203k, but not investors. The program is designed for one to four unit properties, but condo and town home owners can use the program for interior projects.
You must borrow at least $5,000, and there are maximum limits set by the FHA that vary by location. For most people buying a single-family home that is not extravagant, you’ll fall into these limits. For smaller projects, the Streamlined 203 K loan allows you to borrow less (with an easier process).
You can borrow enough to finance 110% of the home’s projected value after improvement. Appraisers will review your plans and take the future value of your home into account.
Interest rate: the interest rate will vary, depending on rates in general and your credit. Expect to pay a rate that’s 1% or so higher than you’d pay on a standard loan.
Think of this as the cost of easier approval (or bundling both your purchase and improvement loans into one). Plus, lenders need to do extra work tracking the progress of your project and handling payouts. At the same time, the loan is insured by the FHA, so lenders might offer a lower rate than you’d get elsewhere. Compare offers and get the loan that works best for you. 2023k loans can be either fixed rate or variable rate loans with repayment up to 30 years.