FHA home loans are some of the most popular home loans in the market. FHA was created as part of the National Housing Act of 1934.  Your parents, and even your grandparents probably bought their first home with an FHA loan.


By obtaining an FHA loan, Minnesota residents can obtain a very low down payment government insured home loan, that also allows you to roll your closing costs into the loan.


Follow this link to learn more about the basic FHA Home Loan.


FHA 203k Loans - Rehab Loans to Buy it and Fix it


Found a house in need of a little repair? FHA also offers a very popular home rehabilitation loan, commonly known as the 203k Loan. This loan allow you to both buy the home, and get the money to repair the home, all in one simple loan, with one small down payment.


How Does a 203k Loan Work


The first step, is to apply for a basic FHA Home Loan. Once Pre-Approved, begin your search for the perfect home.


If the home you find needs a little tender-loving care, or some updates, like a new roof, contact your Cambria Mortgage Loan Officer to discuss the property condition, and what items may need repair.


There are likely some items that the FHA program will require to be repaired to buy the home, and of course some items that you would love to upgrade or improve.  We refer to these as needs and wants.


Once you are sure the home will fit the basic FHA 203k loan requirements, the smart next move is to get a bid for the repair work from a licensed contractor.


You are NOT allowed to do any of the repairs yourself under the 203k loan program.


Some people guess on the cost of repair, and make an offer WITHOUT a contractors bid.  We have seen way too many of these be way off, so offering on a house without a contracts bid is strongly not advisable.


What does the Contractor you select need to do?

  • Provide written work plan and cost estimates
  • Must include nature and type of repair and the cost of completion
  • Must be licensed and bonded for each specialized repair
  • Must agree in writing to complete the work for the amount of the cost estimate and within the allowed time

Now knowing your offer price for the house, and the repair bid in hand, decide if buying this particular house makes sense.  If it does, go ahead and make your offer.


Processing a 203k Loan


Once you have an accepted offer, the basic loan underwriting process is fairly standard compared to other mortgage loans, with a few additional items needed:


1) Copy of the bid(s)

2) Signed contractor agreements between you and the contractor

3) Copy of contractors license, insurance, references, and a signed W9

4) Write up from 203k consultant if repairs over $35,000


Due to the additional contractor requirements, it is strongly advisable to make sure you have at least 60-days between your offer to purchase the home and any anticipated closing date.


Once finally approved, the loan closing like normal. The seller and the real estate agent get paid right away.  The contractor gets 1/2 of the repair money right away, and the second 1/2 of the repair money upon proof of completion of the repair work.


203k Loan Appraisal


Once we have your signed application, a copy of the purchase agreement, a copy of the bids, and all of the contractor documents, we can order the appraisal.


The appraisal must say two important things. First, that the house is worth what you are buying it for today, and second, what the appraisal believes the house will be worth after repairs are completed.


The after repair value must be within 110% of the cost to buy the house plus the cost of repairs in order to qualify.


Repair Contingency Fund


A contingency fund is required for any cost over runs. The required contingency will range from 10% – 20% of the amount of the repair bid.


These funds are collected along with the amount listed on the bid from your general contractor, and kept in escrow should something unexpected happen along the way. Should your general contractor needs the funds he/she will file a change order, and upon review, we will release the funds.


If nothing unexpected occurs, the unused contingency money will be credited back to you as principal reduction on the amount of your loan.


Full 203k Loan, or Streamline 203k Loan


There are two major 203k sub-programs, known as a full 203k, or the streamlined 203k.


The vast majority of people only need the streamline 203k, which allows for most common repairs, and up to $35,000 in repair costs.


The full 203k allows for repairs over $35,000, and also allows for more extreme repairs, like moving walls, adding additions, etc.


Allowable Repairs With a 203k Streamline Loan

  • Roof repair, gutters, downspouts
  • Existing HVAC systems
  • Plumbing and electrical systems
  • Flooring
  • Painting
  • Appliances
  • Weatherization
  • Repair, replace or add exterior decks, patios, porches
  • Basement waterproofing
  • Window and door replacement and exterior siding
  • Septic and/or well repair or replacement
  • Improvements for accessibility
  • Lead-based paint stabilization or abatement of lead-based paint hazards

What can’t you do? Ineligible improvements under the Streamlined 203(k):

  • NO major structural repairs
  • NO new construction (adding a room)
  • NO Repair of structural damage
  • NO Repairs requiring detailed plans and specs
  • NO Repair taking more than 3 months to complete
  • NO Repairs that would necessitate more than 2 draws
  • NO Luxury items that are not a permanent part of the real estate
  • NO Jacuzzi tubs, hot tubs, pools

Here are a few details of the FULL 203k loan:

  • A 203k consultant is required to be used
  • For project costing over $35,000
  • Major items (such as foundation, structural items, and additions) ARE allowed

Never assume your family doesn't qualify for an FHA loan.  Call our MN FHA 203k Loan Experts at (651) 552-3681 to discuss any questionable properties BEFORE signing a purchase agreement.


FHA 203k Home Loan Application


Ready?  We can take your loan application by calling our FHA Loan Experts at (651) 552-3681, you can fill out the FHA Loan Online Application, or you can visit us in our FHA Loan Office in St Paul, MN.



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Approved FHA Lender, VA Lender, and USDA Lender in MN, WI, and SD

HUD, The VA, and the USDA requires those who offer their mortgage loans go through a stringent approval process. We are an approved FHA, VA, and USDA mortgage lender. We are not acting on behalf of, or under the direction of the VA or the Federal Government. HUD / FHA and the VA do not lend directly to the public, only through approved lending institutions like Cambria Mortgage.