Mortgage Options for Potential Money Pit

Dear Dr. Don, 

How do I qualify for a mortgage on a home that needs work? Do I need really good credit and a lot of money down?


-Ron Rehab

Dear Ron, 

The Federal Housing Administration has a mortgage loan insurance program that should work for you. It is the Section 203(k) Rehab Mortgage Insurance program. Homebuyers can finance both the purchase price of a home and the cost of rehabilitating it. Homeowners may also use the program to refinance their current home and pay for rehabilitation costs.

The total value of the property can't exceed the FHA mortgage limit for the area. The Streamlined 203(k) program allows a homebuyer or homeowner to finance up to $35,000 to repair, improve or upgrade a home.

In general, FHA loan underwriting standards have lower down payment requirements than conventional mortgages. You can also qualify with lower credit scores. The FHA's website says, "All persons who can make the monthly mortgage payments are eligible to apply."

Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.

Ask the adviser

To ask a question of Dr. Don, go to the "Ask the Experts" page and select one of these topics: "Financing a home," "Saving and Investing" or "Money." Read more Dr. Don columns for additional personal finance advice.

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

Copyright 2014, Bankrate Inc.