Myth #9 about the FHA 203k: 203k Loans Come with High Interest Rates


There's some truth to this one. FHA 203k loans typically do have slightly higher interest rates compared to standard FHA loans.


Here's why:

  • Increased Lender Risk: From the lender's perspective, there's more inherent risk involved in financing both the purchase and renovation because there's more uncertainty about the final property value after the renovations are complete.
  • Higher Rate Reflects Risk: The slightly higher interest rate on a 203k loan reflects this additional risk that the lender takes on.

However, it's important to consider these points as well:

  • Still Competitive Rates: Even with slightly higher rates, FHA 203k loans can still offer competitive rates compared to other loan options for fixer-uppers.
  • Benefits Outweigh Rate Increase: The convenience of financing the entire project (purchase and renovation) in one loan, along with the potential for a lower down payment, can outweigh the slight increase in interest rate for many borrowers.

Here's the key takeaway: While FHA 203k loans may have slightly higher interest rates, the overall benefits and affordability they offer can make them an attractive option for financing the renovation of your dream home. It's always a good idea to compare rates from multiple lenders to get the best possible deal.

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