What is a 203(k) FHA Home Improvement Loan Anyway?

203k loan questions answeredWhether you live in your home now or if you are a first time home buyer and you have found your dream home,the FHA home improvement loan can help provide money for repairs.

If you’ve encountered a very expensive problem, this program gives you cash back to fix issues. Common reasons borrowers apply for the program include; repairs or modernization’s, new energy efficient appliances, a new roof, bringing it up to code, solar, room additions bathroom remodel, kitchen remodel, landscaping, or make it more livable for the occupants, etc etc. There are very few repairs not allowed under the program such as a foundation repairs.

What is usually an expensive and time consuming process to rehab the property can be made easier with a 203(k). This option is friendly to lenders and borrowers alike whether the home is a year or older in age that you wish to buy, or currently reside in and is already under a mortgage.

How much will the 203(k) loan give me?
What kind of property can I get?
Qualifications house must meet
What is the down payment and interest payment?
How exactly does the loan work?
List of eligible reason to get a 203(k) loan


Question: How much will the 203(k) loan give me and for what purposes?

There are two categories of 203(k) loan programs you can enroll in. A streamlined 203(k) can be used on repairs that are not relative to structural repairs, like putting in a new oven or new floors. Then we have the regular 203(k) for structural repairs, such as roofing. You can also be found eligible to use the loan to convert a building into a 4 unit or less dwelling or to make approved, interior condo upgrades.

The amount of the 203(k) loan depends on which program you choose. A regular 203(k) loan can be the value of the property without repairs plus the estimate of those repairs, or 110 percent of the property value after the repairs have been done. The streamlined 203(k) program from the Federal Housing Administration (FHA) allows for a financing of up to $35,000 into a home loan for the specific upgrades and repairs that are not deemed structural.

If the house itself is fine, but the foundation is causing damage to it, there is also a solution to that. The 203(k) may be used to relocate a residential property to a new foundation. As long as this project does not exceed the local FHA mortgage limit, this is an eligible undertaking.

Ready to apply for a 203(k) home loan? Call our office at 877-432-5626 and dial zero. Or you may use the chat feature on our site to speak to one of our in-house experts.

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Question: What kind of property can this money be used on?

The money from this program can not only be used for a home you occupy, or intend to occupy, but can also help someone selling their home. One of the approved uses of the 203(k) can be used to enhance the exterior of the home so that prospective buyers are not “turned off” to the point of ignoring that the interior is perfectly acceptable.

The 203(k) may be used on single family dwellings, as well as one to four unit structures. Even if a portion of the multi-unit property is being used for business, as long as part of the property is residential, the 203(k) is eligible for needed repairs and upgrades. If a home has been torn down and you intend to start over on that foundation, that can qualify, too. Even condos are eligible!

There are two big advantages of using this program. It gives more of an opportunity to prospective home owners if their only choice financially is to buy an older home, or to renovate the one they are currently in for present and future purposes. It is also a great tool for community renewal to improve the value of a neighborhood by modifying a homely property. A separate benefit could be if you occupy or have your sights set on a historic property, you can be part of preserving history if the home qualifies for the 203(k).

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Question: Are there any other qualifications the house must have, other than being more than a year old and needing repairs/upgrades?

Some may think that the 203(k) is only going to be approved for borderline, haunted house-looking properties. A home that was subject to foreclosure or a short sale and will need a laundry list of repairs done. Truth is – the 203(k) has many uses on different types of properties.

The repairs in question must be $5,000 or higher. This money can be placed in escrow until after the maintenance has been done. There are also mortgage limits set by the FHA in certain parts of the country.

If you want our assistance in seeing if the property you are looking into qualifies, call us at 877-432-5626 and dial zero.

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Question: What kind of down payment and interest payments are required of me, with the 203(k)?

Much like the regular FHA home loan, you will have to plunk down 3.5 percent of a down payment. However, this money may be gifted from someone close to you, or a nonprofit on your behalf. Also, there are not any set interest rates for the 203(k), so interest rates can be very low, if a lender is flexible. Closing costs can also be paid by the lender or the seller. The loan can be done at a fixed or adjustable interest rate; however, the fixed rate loan is the recommended option.

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Question: How exactly does the loan work, if it’s just not all going to the seller, like a normal loan?

Part of the loan is used to either pay the person or people selling the property, or finish paying the remainder of the present mortgage if this is a refinancing scenario. The rest of the money, which is the $5,000 minimum or higher for the repairs, is placed in escrow. This money is then released once the rehab is finished.

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Question: I like lists. Can I just have a list of eligible reasons in which I can get the 203(k)?

Aside from the basic qualifications in getting this loan, or pending on which type you qualify for, here is a quick list of scenarios in which you could qualify for a 203(k) –

  • Changes or complete reconstruction of house structure
  • Bringing a home up to code
  • Making the home more energy efficient
  • Modernizing or adapting home for the disabled
  • Making a building with multiple units into a 4 unit or less dwelling
  • Moving a home from a bad foundation to a good one
  • Removing safety and health hazards
  • Improving appearance of outside of home to prevent the home, and other homes in the neighborhood, from losing value
  • Interior changes like new carpet, painting the walls, and new appliances like ovens
  • Roofing and related repairs
  • Large-scale landscaping project
  • Plumbing repairs, putting in a well, or installing a septic system

 

Have more questions on the 203(k) home loan? We’re happy to help! Call our office at 877-432-5626 and dial zero. Or use the convenient chat feature on our site.

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For all other information on government home loans, including VA Home Loans, visit VA Home Loan Centers.  Click here for information on how to apply for a USDA Home Loan. For information on an FHA Home Loan, click here.

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