FHA 203K

The FHA 203K is a 30 year home rehabilitation loan for a primary residence. It enables homebuyers and homeowners to finance either:

• The purchase of a house and the cost of its rehabilitation through a single mortgage; or
• The rehabilitation of their existing home.

FHA 203K fills another unique and important need for homebuyers. When buying a house that is in need of repair or modernization, homebuyers usually have to follow a complicated and costly process:

• First, finding financing to purchase the property;
• Then getting additional financing for the rehabilitation work; and
• Finally, finding a permanent mortgage after rehabilitation is completed to pay off the interim loans.

The interim acquisition and improvement loans often have relatively high interest rates and short repayment terms. However, FHA 203K offers a solution that helps both borrowers and lenders, insuring a single, long term, fixed or adjustable rate loan, to cover the acquisition and rehabilitation of a property. The FHA 203K loan saves borrowers time and money.

Eligible Properties

• 1 – 4 unit owner occupied properties.
• May be REO’s, foreclosures, and short sales.
• May be an incomplete renovation.

Ineligible Properties

• Manufactured Homes
• Homes that have never been completed
• Homes that have been completely demolished including foundation
• Log homes
• Condotels
• Cooperatives

Eligible Improvements

Virtually any kind of improvement is eligible provided it becomes a permanent part of the real property and adds value.

• Additions to the structure
• Kitchen or bath remodels
• Finished basement or attic
• Patios, decks, or terraces
• Roofing and landscaping
• Safety, energy efficiency and electrical upgrades
• Handicapped accessibility improvements

 Detached Structures (This considered and eligible improvement)

• Existing detached unit – ALLOWED
• Existing detached garage – ALLOWED
• New detached garage – ALLOWED
• New detached unit – NOT ALLOWED; must be attached
• Luxury Items – NOT ALLOWED
• New swimming pools, Hot tubs, Tennis courts, Gazebos, Barbecue pits, Saunas, or alterations to support commercial use.
• Exception:
• Existing Pool – Up to $1,500 allowed to repair existing pool only.

Eligible Expenses

• Cost of Materials, labor, contingency reserve, overhead and construction profit (noted in each work item), up to 6 months PITI (Principal, Interest, Taxes, Insurance).
• Expenses related to the rehabilitation such as permits, fees, licenses, inspection fees by a qualified home inspector, inspection fees during construction by a HUD accepted inspector, lien protection fees for title updates & architectural/engineering fees (soft costs).
• Cost of rehabilitation may also include the supplemental origination fee and the discounts which the borrower will pay on that portion of the mortgage proceeds allocated to the rehabilitation.

Program Eligibility Guidelines

Eligible Programs

• 30 year fixed rate mortgage
• 1 year adjustable rate mortgages (Not available with Jumbo loans)
• Optional temporary 2/1 buydown

Loan Purpose Purchase – Up to 96.50% Loan To Value
Purchase & Rehabilitate existing structure completed for > 1 year

• Refinance – Up to 97.75% Loan To Value
• Rehabilitate existing Structure completed > 1 year
• Rehabilitate a structure completed > 1 year and refinance outstanding balance

Occupancy Owner occupied, primary residence

• Rehabilitation Amounts Minimum – $5,000
• FHA 203K Standard
• No Max provided the total base loan amount does not exceed HUD’s statutory maximums
• Up to 100% of the loan amount may be allocated to rehabilitation
• Streamlined FHA 203K
• $35,000 maximum