You’re probably thinking about buying a home here in Georgia, but touring the same old cookie cutter overpriced new construction homes or resales in your area are simply not doing it for you. So you found a house that’s not in great condition but has some good bones on it in a great neighborhood and now you’re thinking – how can I buy this property and turn it exactly the way I want.
This is where the FHA 203k loan comes in and, in this article, I’m going to tell you everything you need to know about using an FHA 203k renovation loan in Georgia.
What is an FHA 203k Loan in Georgia?
First things first, what exactly is an FHA 203k loan in Georgia?
The FHA 203k loan is a subset of the FHA loan program.
An FHA loan is a government-insured mortgage and one of the most popular loans for many homebuyers, especially first-time homebuyers.
FHA loans are very attractive because they require a relatively small down payment, just 3.5% of the price of the house and it has some of the most forgiving credit requirements of any loan. For example, the FHA loan only requires a minimum 580 credit score to qualify.
The difference between a regular FHA loan and an FHA 203k loan is that the 203k portion allows for the financing of the purchase and renovations or repairs into a single mortgage.
Why is this so advantageous?
Because the FHA 203k loan follows the same guidelines as a regular FHA mortgage. It has the same credit score requirements, debt-to-income ratio and most importantly, minimum down payment required.
Follow along because I’m going to give you a real case scenario on how this loan would work on a rehab purchase.
There are two types of FHA 203k loans in Georgia.
Before we jump into a scenario, let’s highlight the two types of FHA 203k loans in Georgia.
Standard 203k Loan
The Standard 203k loan is used when you need extensive renovation in the home, including structural changes that cost more than $35,000.
This would be the loan that you’d want to use if you are buying a “fixer-upper”.
You will need to employ a HUD consultant and a General Contractor for the project when you are getting the standard 203k loan.
Limited 203k loan
The FHA limited 203k loan is designed for minor, non-structural or simple improvements in a home. You’ll use this loan if the total cost of your project is less than $35,000.
Let’s say you’re looking to paint the house, maybe renovate a small bathroom, room, or use the funds for appliances. You would be suited for the 203k limited.
Because the cost doesn’t exceed $35,000, HUD does not require the HUD consultant to oversee the project which will save you money.
How to qualify for an FHA 203k loan in Georgia? (If you are buying a house)
There are three major requirements that you need to meet when you are looking to qualify for an FHA 203k loan in the state of Georgia. Let’s go over them.
- Credit score: 580 is the minimum credit score you’ll need
- Down Payment: 3.5% of the purchase price plus the cost of the rehab
- Debt-to-income ratio: FHA has a maximum 47% housing and 57% total debt-to-income ratio. Meaning, the total house payment cannot exceed 47% of your gross income and your overall monthly payments including the house payment cannot exceed 57% of your gross income.
One last thing… OK maybe 4 major requirements.
FHA loans are only for owner-occupied properties and the 203k loan is no different. If you want to use an FHA 203k mortgage for the purchase of a home in Georgia, you’ll need to occupy it as your primary home for at least 1 year.
How to qualify for an FHA 203k loan in Georgia? (If you are a homeowner)
You can use the FHA 203k if you are a homeowner as well. It would be a refinance of your current mortgage with the exception that you would increase your loan amount in order to do the renovations that you need.
These are the requirements:
- Credit Score: 580 is the minimum credit score you’ll need
- Loan to Value: The maximum LTV allowed is 96.5% BUT this is based on the After Repair Value (more on this later)
- Debt-to-income ratio: 47% housing and 57% total debt to income ratio
What types of renovation projects are eligible for the FHA 203k Loan?
You are going to be really surprised about the amount of work that you can do with an FHA 203k loan for your home in Georgia. I’m just going to highlight some of the most common ones here:
- Structural alterations and reconstruction
- Remodeling of kitchen, bathroom, bedrooms, etc.
- Adding a bedroom or extra room
- Closets
- Changes to the appearance of the property
- Elimination of health and safety hazards
- Adding energy efficient improvements such as solar panels
- Roofing, gutters, downspouts
- Major landscaping work
- Electrical, plumbing, wells and/or sceptic systems
- HVAC replacements
- Accessibility or modifications for elderly or disabled individuals
- Adding or repairing decks, patios, porches
The FHA 203k loan can help you do a whole lot to a house but it does not allow for luxury items such as:
- Swimming pools
- Hot tubs, saunas
- Outdoor kitchens
- Or just about anything that doesn’t improve the house itself (non-essential).
Real life scenario for an FHA 203k loan in Georgia
Our client purchased a home that needed extensive repairs in Atlanta in 2024. The price of the house was $230,000 and after talking to a General Contractor, they came up with a list of items that they wanted to tackle. The total amount of the repairs was $70,000.
With the 203k loan, our client had an “adjusted” purchase price of $300,000.
Since the adjusted price was $300,000, her down payment of 3.5% came out to $10,500.
We financed $294,567 after the up-front mortgage insurance. The seller was paid the $230,000 for the property and the remainder, went for the rehab.
Once we conducted an appraisal, the after-repair-value (ARV) came out to a whopping $380,000!
She literally pumped over $80,000 of equity into the property with just $10,500 (Her down payment)!
Meaning, that after the project was finished, she would have nearly $100,000 in positive equity thanks to this loan.
Hiring your contractors for the FHA 203 loan in Georgia
There are certain rules of who you can hire when it comes to performing the work on an FHA 203k loan.
In general, you will need to hire a General Contractor or a licensed contractor. Depending on the scope of work, for example, on small projects you may not need a General Contractor.
However, if your project involves permitting, you will most likely need a General Contractor for the project.
Can I do the work myself of an FHA 203k Loan?
The answer here is a resounding NO.
Although FHA may possibly allow you to do some work, and that is small items, the problem is that your particular lender may not allow you to touch the property at all.
It is a lot of liability for a lender for a homebuyer or a homeowner to perform work on a house. Even if you experience doing home projects. The only exception to this rule is if you are yourself a licensed General Contractor and even then, you will have to get permission from your lender for this.
The HUD Consultant
If the scope of work exceeds the $35,000 for the limited 203k loan, you will need a HUD consultant to oversee the project.
During the approval process of the loan, your lender will ask you to hire a HUD consultant before they issue a final approval. The consultant will also turn in different paperwork about the work that you are doing. Their main function is to act as a project manager, overseeing everything starting from the initial inspection through the final walkthrough.
Hiring the HUD consultant is a cost that you need to consider when getting an FHA 203k loan. Typically, the cost is about $400-$1,250 to hire a HUD consultant.
How to choose an FHA 203k consultant in Georgia
If you are looking for an FHA consultant in Georgia, you can find one pretty easily:
- Use the HUD consultant directory by going to the HUD website here in this link
- Ask your Lender or Mortgage Loan Officer: Very likely, you can get a good referral from your mortgage loan officer
Alternative Renovation Loan Options in Georgia
The FHA 203k loan is one of the most popular renovation programs around but it may not fit your needs. If that’s the case, these are some other options you can consider:
Fannie Mae HomeStyle Renovation Loan
The HomeStyle Loan is the 203k “version” of the conventional loan.
It will allow for a wider range of renovation projects than the 203k program and also, for luxury items such as pools, saunas, and even to build an ADU (Accessory dwelling unit).
Another huge advantage over the HomeStyle loan over the 203k loan is that you can use it for second homes or vacations homes and investment properties.
VA Renovation Loan
This loan is only available for eligible veterans and it’s the renovation program of the VA loan.
However, this loan can be difficult to get because it’s not offered by many lenders. Additionally, it has a maximum rehab limit of $50,000.
Other options if you already own the property:
Home Equity Line of Credit (HELOC)
A HELOC is a revolving line of credit based on your home equity. It’s a second mortgage that will not affect your current first mortgage. Pay as you go, think of it like a credit card.
Home Equity Loan (HELOAN)
Another type of 2nd mortgage based on how much equity you have in the property. You get a lump sum of money up front and your payment is fixed over the life of the loan, typically, 20 years. Think of it like a personal loan.
Cash Out Refinance
You take on a higher loan amount compared to what you owe. The refinance will pay off your current mortgage and you get the difference in a lump sum. No second mortgages here, it’s only one mortgage.
For example, if you owe $200,000 and you get a loan for $300,000, you will get $100,000 as your cash out.
In Conclusion
The FHA 203k loan offers Georgia homebuyers and homeowners an amazing solution for purchasing and rehabbing properties without busting your bank account.
With the power of this loan, you can turn a fixer upper into a dreamy place to live or your existing house that may be getting a bit outdated or is needing some repairs into its former glory. Whatever the case may be, this is a great option
