Interactive Mortgage Tools

Mortgage Information

Mortgage Resources

What is a FHA 203(k) Loan

Renovate a Home w/HUD's FHA 203(k) Loan

Most mortgage financing plans provide only permanent financing. That is, the lender will not usually close the loan and release the mortgage

proceeds unless the condition of the home meets the investor's property guidelines. Typically, any deficiency with the property that poses a health or safety risk, must be repaired prior to closing. That includes items such as, roof, plumbing, electrical, A/C, or structural. When rehabilitation is needed, a lender typically requires the improvements to be finished before a long-term mortgage is made. If the seller won't or can't make the repairs, then what's a buyer to do? No buyer is going to spend money repairing a property they don't own yet!

When a homebuyer wants to purchase a house in need of repair or modernization, the homebuyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods. The FHA 203(k) program was designed to address this situation. The borrower can get just one

mortgage loan, at a long-term fixed rate or adjustable rate, to finance both the acquisition and the rehabilitation of the property. A FHA 203(k) loan provides funds for the rehabilitation, as well as the acquisition of the property. The mortgage amount of a FHA 203(k) loan is based on the projected value of the property with the work completed, taking into account the cost of the work. A FHA 203(k) loan allows a buyer to finance up to 96.5% of the renovation costs, providing the appraisal will support the completed value of the property.

Eligible Property　

To be eligible for a FHA 203(k) loan, the property must be a one-to four-family dwelling that has been completed for at least one year. The number of units on the site must be acceptable according to the provisions of local zoning requirements. Homes that have been demolished, or will be razed as part of the FHA 203(k) loan rehabilitation work, are eligible provided some of the existing foundation system remains in place.

In addition to typical home rehabilitation projects, a FHA 203(k) loan can

be used to convert a one-family dwelling to a two, three, or four-family dwelling. A FHA 203(k) loan can be utilized to rehabilitate an existing multi-unit dwelling by decreasing the number of units to a one to four-family unit.

How the FHA 203(k) Loan Program Can Be Used

A FHA 203(k) loan program can be used to accomplish rehabilitation and/or improvement of an existing one-to-four unit dwelling in one of three ways:

    To purchase a dwelling and the land on which the dwelling is located and rehabilitate it.
    To purchase a dwelling on another site, move it onto a new foundation on the mortgaged property and rehabilitate it.
    To refinance existing liens secured against the subject property and rehabilitate such a dwelling.

A FHA 203(k) loan can be used to make repairs or upgrades. You can update kitchens, baths, electrical service, flooring, windows, roof, or even add an addition to a property. A FHA 203(k) loan can truly make any property your dream home.