A renovation loan product available only to owner occupants is the FHA 203(k) renovation loan.  While not available to investors, it is a great option for homeowners who need expanded criteria for their primary residence.  Single family homes, duplexes, triplexes, and even 4-plexes are eligible for the 203(k) loan, but you will not be permitted to change the number of dwelling units (i.e. you cannot convert a single family home into a duplex, or a 3 unit into a 2 unit).

The 203(k) loan is very similar in some ways to the Fannie Mae HomeStyle loan, but there are some differences.  Like Homestyle, the work done with the 203(k) loan is expected to be complete within 6 months of loan closing.  Reasonable extensions are allowed, but if you anticipate a lengthy project, you may need to weigh your options. 

FHA does not allow financing of luxury features such as new swimming pools, outdoor spas, tennis courts, outdoor fireplaces, gazebos, or similar items with this loan.

Regardless of how many units are in the property, the minimum down payment stays the same at 3.5%.  These FHA loans typically do require a stronger credit history and score, so while standard FHA loans can go as low as a 500 FICO (with 10% down under 579), these renovation loans start at a 620 FICO.

There are two variations of the 203(k) loan – standard and streamline.  The standard allows for more extensive structural repairs with a minimum of $5,000 in work, while the streamline is limited to simpler cosmetic work and is capped at $35,000 in renovations.  Let’s take a look at eligible improvements with each loan type:

Streamline 203(k) Eligible Repairs

• Eliminating health and safety hazards that would violate HUD’s minimum property requirements 
• Connecting to public water and sewer systems 
• Repairing/replacing plumbing, heating, AC and electrical systems 
• Making changes for improved functions and modernization 
• Repairing or installing new roofing, provided the structural integrity of the structure will not be impacted by the work being performed; siding; gutters; and downspouts 
• Making energy conservation improvements 
• Creating accessibility for persons with disabilities 
• Installing or repairing fences, walkways, and driveways 
• Installing a new refrigerator, cooktop, oven, dishwasher, built-in microwave oven and washer/dryer 
• Repairing or removing an in-ground swimming pool 
• Installing smoke detectors 
• Installing, replacing, or repairing exterior decks, patios, and porches 
• Covering lead-based paint stabilization costs (above and beyond what is paid for by HUD when it sells REO properties) if the structure was built before 1978

Standard 203(k) Eligible Repairs include, but are not limited to:

• Making structural alterations such as the repair or replacement of structural damage, additions to the Structure, and finished attics and/or basements 
• Rehabilitating, improving or constructing a garage – can be either attached or detached but must have its own permanent foundation 
• Eliminating health and safety hazards that would violate HUD’s Minimum Property Requirements (MPR) 
• Installing or repairing wells and/or septic systems 
• Connecting to public water and sewage systems 
• Repairing/replacing plumbing, heating, AC and electrical systems 
• Making changes for improved functions and modernization 
• Making changes for aesthetic appeal 
• Repairing or adding roofing, gutters and downspouts 
• Making energy conservation improvements 
• Creating accessibility for persons with disabilities 
• Installing or repairing fences, walkways, and driveways 
• Installing a new refrigerator, cooktop, oven, dishwasher, built-in microwave oven, and washer/dryer 
• Repairing or removing an in-ground swimming pool 
• Installing smoke detectors 
• Making site improvements 
• Landscaping 
• Installing or repairing exterior decks, patios, and porches 
• Constructing a windstorm shelter 
• Covering lead-based paint stabilization costs, if the structure was built before 1978