Best 203(k) Rehab Loans of 2020

Sometimes referred to as an FHA construction loan, the FHA 203(k) loan is a government-insured mortgage designed for homeowners looking to make renovations or for new buyers looking to rehab a fixer-upper. While a rehab loan may take longer to complete the paperwork and get approved, there are significant benefits like smaller down payments, lower interest rates and lower credit score requirements. Determining the best rehab loans of 2020 involves looking at individual requirements to qualify, required down payments and the bank or lender’s history and reputation.

In this article

    Current mortgage rates

    According to Bankrate’s latest survey of the nation’s largest mortgage lenders, these are the current refinance average rates for a 30-year, 15-year fixed and 5/1 adjustable-rate mortgage (ARM) refinance rates among others.

    Product Interest Rate APR
    30-Year Fixed Rate3.030%3.370%
    30-Year FHA Rate3.240%3.740%
    30-Year VA Rate2.960%3.120%
    30-Year Jumbo Rate3.090%3.210%
    20-Year Fixed Rate2.980%3.270%
    15-Year Fixed Rate2.560%2.890%
    15-Year Fixed Jumbo Rate2.600%2.660%
    5/1 ARM Rate3.060%4.060%
    7/1 ARM Rate2.950%3.960%
    7/1 ARM Jumbo Rate2.910%3.930%
    10/1 ARM Rate3.040%3.910%

    Rates data as of 10/21/2020

    The 6 best 203(k) loans of 2020

    The best rehab loans of 2020

    LenderMinimum Credit ScoreMinimum Down PaymentBBB Rating
    BNC National Bank6203%A+
    LoanDepot5803%A
    Caliber Home Loans6203%A-
    New American Funding580 (possibly lower)3.5%A+
    Carrington Mortgage500Not disclosedA+
    Wintrust Mortgages6203%A+

    Best for short credit history – BNC National Bank

    BNC National Bank is known for lending with short credit history, this can help someone who would be denied by traditional guidelines get approved.

    J.D. Power Rating
    N/A
    Min. Credit
    640
    Min. Down Payment
    3%
    SimpleScore
    3.5 / 5.0
    close
    SimpleScore BNC National Bank 3.5
    Perks 3
    Credit Impact 3
    Customer Satisfaction N/A
    Product Variety 5
    Fees 3

    Those looking to secure an FHA 203(k) loan with limited credit history may want to check with BNC National Bank. The bank is known to utilize alternative credit data to validate your creditworthiness, including things that don’t normally report on your statement.

    Note: The lender information (Min. Credit Score and Min Down Payment) included refers to a conventional loan. For more information on rehab mortgage loans, please visit the lender site.

    Best for mediocre credit scores – Loan Depot

    You’ll need to contact the lender for exact details, but lower credit scores will most likely be required to pay a larger down payment.

    J.D. Power Rating
    3/5
    Min. Credit
    600
    Min. Down Payment
    3.50%
    SimpleScore
    4 / 5.0
    close
    SimpleScore Loan Depot 4
    Perks 3
    Credit Impact 5
    Customer Satisfaction 3
    Product Variety 5
    Fees 4

    One of the big advantages of FHA 203(k) loans is it can be made available to borrowers with less than stellar credit thanks to the fact it’s a government-insured product. While no one can guarantee approval other than the bank, loanDepot does advertise offering rehab loans to those with credit scores as low as the mid-500s.

    Note: The lender information (Min. Credit Score and Min Down Payment) included refers to a conventional loan. For more information on rehab mortgage loans, please visit the lender site.

    Best for easy application – Caliber

    Several of the rehab loan options on this list require you to come into a branch location to apply.

    J.D. Power Rating
    2/5
    Min. Credit
    620
    Min. Down Payment
    3%
    SimpleScore
    3.8 / 5.0
    close
    SimpleScore Caliber 3.8
    Perks 5
    Credit Impact 4
    Customer Satisfaction 2
    Product Variety 5
    Fees 3

    For those looking to streamline the process from home, this is not ideal. Caliber Home Loans, on the other hand, offers several online tools you can use to speed up and simplify the process.

    Note: The lender information (Min. Credit Score and Min Down Payment) included refers to a conventional loan. For more information on rehab mortgage loans, please visit the lender site.

    Best for complicated credit – New American Funding

    Best for complicated credit as you can speak to a person and discuss your personal situation.

    J.D. Power Rating
    N/A
    Min. Credit
    500
    Min. Down Payment
    3%
    SimpleScore
    4 / 5.0
    close
    SimpleScore New American Funding 4
    Perks 4
    Credit Impact 4
    Customer Satisfaction N/A
    Product Variety 5
    Fees 3

    Are you someone with less than perfect credit, but it’s as a result of something that you can explain? Unfortunately, most lenders use automated systems that don’t have the capacity to input your personal reasoning. New American Funding, though, utilizes a manual underwriting process to evaluate your creditworthiness, which means you can talk to an actual person about your situation. It doesn’t guarantee approval, but it might be a necessary avenue for some situations.

    Best for very low credit scores – Carrington Mortgage Service

    Having a bad credit score is usually a deal-breaker when it comes to applying to loans. However, some lenders are willing to accept the risk and offer loans to those with less than favorable credit.

    J.D. Power Rating
    2/5
    Min. Credit
    620
    Min. Down Payment
    3%
    SimpleScore
    3.2 / 5.0
    close
    SimpleScore Carrington Mortgage Service 3.2
    Perks 3
    Credit Impact 4
    Customer Satisfaction 2
    Product Variety 5
    Fees 2

    Carrington Mortgage is known for accepting borrowers with credit scores in the low 500s. Be aware you will most likely get a worse rate than at other lenders, and you will most likely owe a larger down payment, but it may be your only route to approval.

    Note: The lender information (Min. Credit Score and Min Down Payment) included refers to a conventional loan. For more information on rehab mortgage loans, please visit the lender site.

    Best for specialized lending and condominiums – Wintrust Mortgage

    If you’re looking for specialized care from experts who live and breathe FHA loans, you’ll want to check out Wintrust Mortgages.

    J.D. Power Rating
    N/A
    Min. Credit
    620
    Min. Down Payment
    3%
    SimpleScore
    3.7 / 5.0
    close
    SimpleScore Wintrust Mortgage 3.7
    Perks 2
    Credit Impact 4
    Customer Satisfaction N/A
    Product Variety 5
    Fees N/A

    Many banks and lenders specialize in more traditional mortgage loans, and FHA loans tend to be an afterthought. Wintrust, though, is known for specializing in rehab loans and all types of loans for condo owners.

    Note: The lender information (Min. Credit Score and Min Down Payment) included refers to a conventional loan. For more information on rehab mortgage loans, please visit the lender site.

    What is a rehab loan?

    The FHA 203(k) loan is a government-insured product designed to help homeowners or buyers looking to rehab and renovate a home. While the loans are insured by the government, they are still offered by traditional banks and lenders. Because of the insured aspect, though, banks and lenders are typically able to offer much better rates, require smaller down payments, and can approve those with significantly worse credit scores.

    The loan works by essentially bundling your existing mortgage and your rehab funds into one refinanced loan. Because of this, FHA 203(k) loans can also be used to purchase a home that will require renovations. This gives the homebuyer adequate funds to make the purchase and also additional funds to make the rehabs. Be aware that all of the same guidelines for the rehab projects on existing homes apply to new home purchases as well.

    While the 203(k) loan may sound like a dream, there are a few limitations you need to be aware of. First, the loan typically carries a monthly mortgage premium, up-front costs and possibly a supplemental origination fee. In other words, the 203(k) is not free money and still carries some of the same fees you paid when you initially purchased your home.

    Additionally, there are limitations on what you’re able to cover with the loan, how quickly you have to make renovations, and the manner in which you do things (health and safety codes). The bottom line is to take your time to make sure the FHA 203(k) is a good fit for your home projects as opposed to using a different type of loan or saving up cash for the project.

    How should I choose the right rehab loan?

    Selecting the right rehab loan begins with choosing the right type of loan. There are two types of FHA 203(k) loans to choose from — the standard loan option and the limited loan option. If you are looking to make rehabs of $35,000 or less, you’ll want to select the limited option, also sometimes known as the streamlined version. For anything larger than that, you’ll want to use the standard plan. Additionally, the limited option requires that the home is habitable during the entire process and has limits on the type of work that can be completed.

    Once you’ve decided on a loan type, it’s time to choose a lender. Choosing the right lender all depends on your personal financial situation. Make sure you’re fully aware of your current credit score and what size payments you’d be comfortable making before shopping lenders. From there, compare rates, down payments, term lengths, and all other aspects you’d consider with a traditional loan.

    Methodology

    SimpleScore

    We’ve created the SimpleScore to help you objectively compare products and services here at The Simple Dollar.

    Our editorial team:

    • Identifies five factors to compare across each brand
    • Determines the rating criteria for each factor
    • Calculate an average of those five factor scores to get one SimpleScore

    We break down each of these five factors and their rating criteria for our review of the best mortgage companies.

    Why do some brands have different SimpleScores on different pages?

    Some brands like Bank of America, Wells Fargo, and Chase have different SimpleScores because they offer more than one financial solution — like home loans, auto loans, personal loans and more.

    For instance, in our Bank of America Mortgage Review, we give the company a 3.8 out 5 based on our five rating factors for mortgages. In our Bank of America Auto Loans Review, we give the company a 4.4 out of 5 based on our rating factors for auto loans. By tailoring our SimpleScore to each financial solution, we’re able to give you a more accurate view of a brand’s services and how it compares to competitors’ services.

    Perks

    Mortgage lending companies that provide more perks receive a higher score from us.

    Hard/Soft credit checks

    We know that credit checks affect your score –– that’s why we favor companies that offer soft credit checks or hard credit checks when you want to see your pre-approval rates.

    Customer satisfaction

    We use the J.D. Power 2019 Mortgage Origination Satisfaction Study℠ to find out how customers rate their experience with each company. (If a company is not included in J.D. Power’s study, we skip this rating factor and average the remaining factor scores.)

    Product variety

    Mortgage lenders that offer more products for their home loans are given higher scores.

    Fees

    Fees can add up fast. Companies that don’t require as many fees for your home loan receive a higher score with us.

    Jason Lee

    Contributing Writer

    Jason Lee is a U.S.-based freelance writer with a passion for writing about dating, banking, tech, personal growth, food and personal finance. As a business owner, relationship strategist, and officer in the U.S. military, Jason enjoys sharing his unique knowledge base and skill sets with the rest of the world. Follow Jason on Facebook here