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FHA Home Rehabilitation Loans

With the 203k home loan, FHA enables borrowers to finance construction and do cash out refinancing for making home improvements. The Section 203(k) program is the Department of Housing and Urban Development's (HUD's) primary program for the rehabilitation and repair of single family properties. Many FHA lenders have successfully used the Section 203(k) program in partnership with state and local housing agencies and nonprofit organizations to rehabilitate properties. These lenders, along with state and local government agencies, have found ways to combine Section 203k loan program with other financial resources to assist borrowers.

Most lenders will not typically close the loan and release the mortgage proceeds unless the condition and value of the property provide adequate loan security. When rehabilitation is involved, this means that a lender typically requires the improvements to be finished before a long-term mortgage is made.

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FHA Mortgage Rates dropped below conforming rates in 2008, but with the economy and inflation concerns, interest rates will likely increase soon. Refinance today and get a fixed rate guarantee for thirty years.

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Buy a Foreclosed Home and Finance Improvements with FHA

The FHA home rehabilitation program is different. Through this program, the buyer only needs one mortgage loan to finance both the acquisition and the rehabilitation of the property. For example, you could buy a foreclosed home and fund renovations with a single 203k mortgage loan. According to the HUD website, the property must meet these requirements to be eligible for a 203k 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. All newly constructed units must be attached to the existing dwelling. Cooperative units (coops) are not eligible.
  • Homes that have been demolished, or will be razed as part of the rehabilitation work, are eligible provided some of the existing foundation system remains in place.
  • This program can be used to convert a one-family dwelling to a two-, three-, or four-family dwelling. An existing multi-unit dwelling could be decreased to a one- to four-family unit.
  • An existing house (or modular unit) on another site can be moved onto the mortgaged property. However, release of loan proceeds for the existing structure on the non-mortgaged property is not allowed until the new foundation has been properly inspected and the dwelling has been properly placed and secured to the new foundation.
  • A 203(k) mortgage may be originated on a "mixed use" residential property provided: (1) The property has no greater than 25 percent (for a one story building); 33 percent (for a three story building); and 49 percent (for a two story building) of its floor area used for commercial (storefront) purposes; (2) the commercial use will not affect the health and safety of the occupants of the residential property; and (3) the rehabilitation funds will only be used for the residential part of the dwelling and areas used to access the residential part of the property.

HUD also permits Section 203(k) mortgages to be used for individual units in condominium projects that have been approved by FHA, the Department of Veterans Affairs (VA), or are acceptable to FNMA under the guidelines listed below:

  1. Owner/occupant and qualified non-profit borrowers only; no investors;
  2. Rehabilitation is limited only to the interior of the unit. Mortgage proceeds are not to be used for the rehabilitation of exteriors or other areas which are the responsibility of the condominium association, except for the installation of firewalls in the attic for the unit;
  3. Only the lesser of five units per condominium association, or 25 percent of the total number of units, can be undergoing rehabilitation at any one time; and
  4. The maximum mortgage amount cannot exceed 100 percent of after-improved value.

If you are planning to purchase a foreclosed property or to rehab a property you already own, the FHA 203(k) program could be just what you need. Fill out the free loan form on this site. We’ll be happy to match you up with the best FHA loan for your needs.

 

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This is not a commitment for a FHA house loan or an advertisement for credit as defined by paragraph 226.24 of regulation Z.
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