FHA 203k Loan Program
FHA 203 (k) loans are provided by the Federal Housing Administration. These loans are designed to encourage lenders to fund purchases that are riskier than usual.
This program is designed for houses that are in need of serious rehabilitation or have been severely damaged.
There are many benefits associated with this type of loan, including loose eligibility requirements as well as a low down payment.
It is important to note that current homeowners who have a property in need of improvement can refinance with a FHA 203 (k) loan.
FHA 203 (k) Loan – How it Works
In addition to single family homes, these additional types of properties also qualify for a FHA 203 (k) loan:
- Condominiums (must be pre-approved by the Federal Housing Administration).
The homebuyer is required to be an owner-occupant. For this reason, investors do not qualify for the program.
There are three ways in which the FHA 203 (k) loan program can be used:
- To purchase the structure and the land with the intent of rehabilitation.
- To purchase the structure and move it to another mortgaged property with the intent of rehabilitation.
- To refinance the borrower’s original mortgage as a means of obtaining funds for rehabilitation.
Qualifying for a FHA 203 (k) Loan
In the section above, we touched on the three ways in which the FHA 203 (k) loan program can be used. Along with this, it is important to pay close attention to the two types of loans that are available:
1. Standard FHA 203 (k) loan. This is for more complicated projects that often times involve structural improvements, exterior grading, and other renovations that would not allow the owner to occupy the property.
2. Streamlined FHA 203 (k) loan. This is for less complicated projects, in most cases those that are not going to surpass $35,000 in renovation expenses. With this type of loan, the program does not require the homeowner to consult with an engineer, architect or other construction professional.
Improvements Eligible Under the Streamlined FHA 203 (k) Program
Before applying for a FHA 203 (k) loan, borrowers must be aware of which improvements qualify under the program. This will help ensure that the repair and remodeling process moves forward in the appropriate manner.
Here are some of the many eligible improvements:
- Disability access.
- Room additions.
- Kitchen renovation.
- Decks and patios.
- Bathroom remodeling.
- New siding.
- Site grading and landscaping.
Is the FHA 203 (k) Loan Program Only for Single Family Homes?
While single family homes make up the majority of properties within the FHA 203 (k) loan program, others qualify as well.
This includes: duplex, triplex, four-plex, condos, and mixed-use properties.
This government-backed loan program has helped many owner-occupants purchase a property, rehab it to their standards, and enjoy a safer and more convenient home.
When it comes to renovation loans, the FHA 203 (k) program is clearly one of the best.