The 203K is a loan with which to buy residential real estate in which some remodeling and/or rehabilitation is necessary or desired.
Sounds simple and not particularly revolutionary - but read on!
The major difference between the 203K and an ordinary loan is that it is based on future value of the property after it is fixed up. The 203K can provide financing for both the purchase of the property and also the fix up costs: remodeling, termite work, restoration, foundations, etc.
The program is used to finance the rehabilitation or improvement of an existing one to four unit residential structure in the following ways:
- Buy a property and fix it up. You may buy a one to four unit dwelling that requires at least $5,000 of work to be done.
- Refinance a property you already own and include in the new loan additional financing for at least $5,000 of fix up costs.
In both cases, the new loan is based on the future value of the property. The future value is determined by an approved appraiser based on the work to be done. The loan is subject to all the same parameters as FHA loans.
How Much Can I Borrow?
The maximum amount of money a lender will give you under an FHA 203k depends on the type of loan you get (regular vs. streamlined).
With a regular FHA 203k, the maximum amount you can get is the lesser of these two amounts:
- The as-is value of the property plus repair costs
- 110 percent of the estimated value of the property once you do the repairs.
With a streamlined loan, you can get a loan for the purchase price of the home plus up to $35,000.
- You may need to have an appraisal to determine the as-is value of the property or the estimated value of the property post-repair, .
- You will be required to put down 3.5 percent, but the money can come from a family member, employer or charitable organization.
Eligible Improvements
While the 203K mortgage provides for flexibility in improving a property, it does require that the condition of the home be brought up to current standards. A termite report is required and the loan will provide for the work cited as necessary by the termite company. In general, health and safety items, code violations, structural problems, termite and related deficiencies and roof problems will all need to be addressed through this loan.
While the borrowers must correct outstanding health and safety problems, they are also free to choose from a variety of improvements which can be included in the financing.
He is only a partial list:
- Remodeled kitchens (including built-in appliances)
- Remodeled baths
- interior and exterior painting
- New siding/stucco
- Room additions
- New garage or carport
- Repair or replacement of heating, plumbing and electrical systems
- Flooring of all types
- Energy conservation measures
- New doors and windows
- New roof and gutters
- Handicapped accessibility
- Adding additional permitted units
- Many more!!