The FHA 203(k) Rehab Loan

The FHA (203(k) program is a purchase or refinance rehabilitation loan from the US Government’s Federal Housing Administration section. This loan program gives a potential borrower with limited money to purchase or refinance a one-to four-unit property and fix it back to livable standards. The terms state the property must be occupied by the owner, but a portion can be used for commercial purposes. For a property to be eligible, any part of the existing foundation must remain in place so properties which are destroyed or have demolition dates set are still valid. In addition to typical home rehab projects, this program can be used to convert a single-family dwelling to a two, three, or four-family dwelling. An existing multi-unit dwelling (5+ units) could be decreased to a one-to-four-family unit. The loan program also allows 203(k) loans to be used for individual condominium units that have been approved by FHA, the Department of Veterans Affairs, or Fannie Mae acceptable. Properties that are not eligible are cooperative units.



Property improvements made using the FHA 203k may be major or minor with a $5,000 minimum and the improvements must be in certain categories. Moreover, the normal upfront charge for Mortgage Insurance Premium (MIP) is not applicable on FHA 203(k) loans. If necessary, some categories are required such as: smoke detectors, termite pest control, moisture damage repair, septic tank, well service, insulation protection, and any health and safety hazards. The improvements that can meet the $5,000 minimum can include plumbing upgrades or replacement, heating, air conditioning, electrical wiring, roofing, rain gutters, flooring repair, and energy conservation. After these improvements are complete, new appliances purchase, pool repair, deck repair, etc. can be done.  Many expenses and improvement costs can be financed into the 203(k) loan, including permits, inspections, contractor write-ups, supplemental fees, escrow for contingency costs and even up to six months of the new mortgage loan payment.

In summary, here’s how the FHA 203(k) loan program works. The loan will be used to purchase a property from one to four units or refinance an existing loan. The initial phase is to get pre-qualified by an FHA lender who has successfully closed 203(k) loans. Once pre-qualified, find a property that needs rehab work. Next, the borrower should do a "feasibility study" on the property; this is a rough cost estimate of the work to be completed. Next, the borrowers’ agent will do an estimated market value based on completion of work. If the costs are acceptable, request a licensed contractor to do an itemized cost breakdown along with an overall cost estimate. Now, you are well on your way to getting your FHA rehab loan.
For more information on this program please visit: http://www.hud.gov/offices/hsg/sfh/203k/203kabou.cfm

FAQ's on the 203k program. http://www.hud.gov/offices/hsg/sfh/203k/faqs203k.cfm  - FAQ’s

 

FHA Down Payment Assistance Grants - up to 100 percent financing . Get all the information on these gifts to bomebuyers when they use a particluar FHA mortgage program.