FHA 203K Rehab Loans

FHA 203(k) Rehab Home Loans*

Turn your "Almost Perfect" Home into your Dream Home.

The FHA 203(k) Rehab Loan is a popular mortgage program designed for buyers that want to finance the cost of home improvements into a new loan.

The Federal Housing Administration (FHA), which is part of the Department of Housing and Urban Development (HUD), offers this loan program to provide for the rehabilitation and repair of single family properties. One single loan is used to pay for the purchase (or refinance) and the cost of rehabilitation or updating of the home. Those properties include condominiums, town homes and single family homes. This loan is only available for homebuyers purchasing a primary residence that they will occupy. Unfortunately, it is not a program for investors to purchase a home – fix it up – and then sell.

Unfortunately, most mortgage loan programs require homes “in need of work” to be completed before the financing can be secured for the purchase transaction. Whether the property needs a little or a lot of work, most First-Time Home Buyers simply don’t have the up-front cash to invest in a property prior to actually securing the financing.

Advantages of 203k Rehab Loans:

Savings

Repairs on a fixer-upper can be expensive, and the 203k Rehab Loan allows borrowers to finance the improvements into the new loan vs having to pay for the upgrades prior to closing.

The financing for this loan will include the purchase price, as well as the improvements you are either required to do to be able to live in the home, or that you want to do, such as upgrade the kitchen, bathroom, etc.

Competitive Interest Rates:

Historically, FHA Mortgage Loans have lower than average rates when compared to commercial or conventional financing programs.

Great Property Deals:

Since Rehab Loans are designed for “fixer-uppers,” buyers can qualify for a loan on a home that needs work, and actually finance the construction costs / repairs up front.

Low Down Payments

Another great thing about the FHA 203(k) Rehabilitation program is that it is originated and underwritten just like a standard FHA loan program. So you can purchase the home with the same 3.5% down payment of a regular FHA loan, depending on your loan amount. In some high cost areas the down payment may be 5%, but there is no larger down payment required on a 203(k) than there is on the regular FHA loan program. And the seller can also still assist you with your closing cost as wel, just like with a regular FHA loan.

203(k) Rehab Loans Eligible Property Types

The property has to have been completed for at least one year, and it has to be a one- to four- family dwelling. You can use the program to convert a one family dwelling to a two-, three-, or a maximum of four family dwelling.

Eligible property types are:

  • single family detached homes,
  • single family attached (like row houses) town homes and condominiums.

* Cooperatives (Co-ops) are not allowed.

The program will let you “pop the top”…find a single story home and add a new level, take a home…demolish it (at least a portion of the foundation must remain) and build a brand new home in its place, and even take an existing house (or modular unit) from one location and move it to a new location.

We think that's pretty cool!!


Two Types of FHA 203(k) Loans:

  • The Streamlined K is used when you want to make minor cosmetic changes to a house and the total rehab cost can not exceed $35,000.
  • A Standard FHA 203(k) loan allows you to make substantial structural improvements, repairs, remodeling and updating to a house…even build a new one.

Streamlined 203(k):

A Streamlined 203(k) allows minimum or limited repairs to be done…basically “cosmetic” repairs, improvements or updates. It also eliminates most of the paperwork required of a full 203(k) and simplifies the process to obtain rehab funds.

  • Under the Streamlined program, there is a minimum of $5,000 and a maximum of $35,000 to be financed in the mortgage amount to improve or upgrade the home.
  • No “structural repairs” are allowed under a Streamlined K, however, making or correcting any structural items is not considered to be minor.
  • The minimum of $5,000 of required and substantial improvements that will increase the marketability and value of the home must first be included. Any repairs and improvements must comply with HUD’s Minimum Property Standards and must meet all local building, zoning and other codes.
  • Minimum required repairs include any health and safety repairs like peeling lead paint or replacing missing railings. Whether you want those items included or not, all health and safety issues must be addressed first. Smoke detectors must also be added if missing.

Eligible Improvements for a Streamlined 203(k):

  • Repair, Replace or Upgrade
  • Roof, 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

Ineligible improvements under the Streamlined 203(k):

  • Major structural repairs
  • New construction (adding a room)
  • Repair of structural damage
  • Repairs requiring detailed plans and specs
  • Any repair taking more than 6 months to complete
  • Repairs that would necessitate more than 2 draws
  • Luxury items that are not a permanent part of the real estate
  • Granite, marble countertops, jacuzzi tubs, hot tubs, pools, etc

Standard FHA 203(k):

If you have a larger project that needs a full gut job or additional rooms, the Standard FHA 203(k) is the right program. This is what we refer to as the “full blown K”.

Under this section of the program, much more extensive repairs or remodeling can be accomplished.

  • The full K allows you to make “structural” changes to enlarge a house, build a new home on an existing foundation and even take an existing house and move it.
  • Unlike the Streamlined K, where the improvements are “cosmetic”, under the full blown K the repairs or improvements can be and usually are “substantial”.

So, you can imagine that the process is a bit more involved.

Think of it as a mini-construction loan program; where your contractor can ask for as many as 5 draws, and each draw request will need to have an inspector come out to make sure the work has been completed for that draw request prior to any monies being paid.

Because it is more involved than a standard loan, there are more costs involved.

Type of work for a Standard 203(k):

  • Structural alterations and additions
  • Garage
  • Attached unit (new)
  • Remodeled kitchen and baths
  • Changes to eliminate obsolescence and reduce maintenance
  • Modernize plumbing, heating, A/C and electrical systems
  • Install or repair well or septic systems
  • Roofing, gutters, downspouts
  • Flooring, tiling and carpeting
  • Energy conservation improvements
  • Major landscaping
  • Improvements for accessibility
  • New non-attached appliances
  • Interior and exterior
  • Swimming Pool repairs
  • Other improvements that are a PERMANENT part of the real estate

*Luxury items are not permitted to be included in the financing

These are both great loans to use to find that “almost perfect” home and truly make it into your Dream Home.

Not all lenders are able to do this type of loan, as you can see, they require a bit more attention once the loan has closed. Our loan origination and servicing staff is well-versed on the aspects and process of the FHA 203(k) Rehab Loans - get started today.

 

* Village Mortgage Company is not affiliated with or acting on behalf of or at the direction of the FHA or the Federal Government.


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