What are the disadvantages and advantages of a 203K FHA and the same for a regular FHA ? Thank you
FHA is easier on the borrower. Conventional is easier on the property.
203(k) gives you the ability to roll future value into the initial loan by including construction cost.
The downside is that you can’t do any of the work yourself and it must all be done by a single GC normally. So it can be more expensive unless you already have the right contractor and plan on doing it that way anyway.
FHA often has less down payment also.
A lender would have the best info for you though.
PMI never goes away with FHA. You have to refinance it out.
FHA 203k Advantages:
- Creation of instant equity
- 3.5.% down of the purchase price and the rehab costs
- Can be used for primary residence with 1-4 units (could also be looked at as a disadvantage)
- When using 2-4 unit property, projected income from other units can be used to qualify
- 6 months' worth of mortgage payments can be rolled into the renovation budget if the house is deemed uninhabitable by the HUD consultant
- Credit scores can go down to 600s (lender dependent)
- DTI can go to as high as automated underwriting system allows (typically 56.9%)
- Allows you to buy a property in any condition
- Can use it to fix minor repairs all the way up to basically a full tear-down
FHA 203k Disadvantages:
- Interest rates tend to be about .25-.5 higher than regular FHA loan
- Additional costs include HUD consultant fee, inspections, title updates, and supplemental origination fee (Cost of doing business, but this is built this into your numbers, so it's no big deal)
Must use a licensed General Contractor for a full 203k or up to 3 specialized contractors on the limited 203k
- Must hold onto the property for 1 year and live in it.
Hope this helps! Any questions, feel free to reach out.
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