The Federal Housing Administration provides FHA 203K loans for houses that require rehabilitation. These loans are originated and administered by private lenders but guaranteed by the government. The program is available for a new loan or a refinance. Many types of repair — new rooms, bathroom remodel, roofing, flooring and air conditioning systems — can be funded with a 203K. Down payment requirements are relatively low. Some programs, such as the Prospect Mortgage Dream Remodel Loan, will approve loan amounts up to 110% of projected market value post repair. FHA 203K availability increases home-ownership opportunities and helps improve communities.
FHA 203K BASICS
* 15- or 30-year term
* ARM or fixed-rate
* 3.5% down payment for loans under $625,500
* Interest rate slightly higher than market rate
* Higher fees for title checks, plan reviews, appraisal, and FHA inspections
* No balloon payment
* Loans take longer to close than conventional mortgages
* More paperwork
Which Repairs Qualify?
* Heating, ventilation and air conditioning
* Roofing and flooring
* Kitchen remodeling
* New appliances
* Room addition / second-story addition
* Disability access
* Decks and patios
* Bathroom remodeling
* New siding
* Energy conservation/efficiency
* Site grading
Which Types of Properties are Eligible?
* Single- to four-family dwelling
* Construction that has been completed for at least a year
* Tear down if the existing foundation remains
* Moving to a new foundation
* Rehabbing the residential portion of a mixed-used property
* FHA-approved condos
Are these loans available to non-occupant investors?
Can the homeowner do the rehab work themselves?
Yes. However, 203K money cannot pay for labor.
Is there a mini version of the 203K?
Yes, the “streamlined” limited repair 203K is available for projects costing $35,000 or less. This is usually appropriate for non-structural repairs.
Can a 203K be used for a new-construction home?
No, the house must be at least a year old.
Are there any deadlines for the rehab work?
Yes. Work must commence within 30 days of closing; cessation of work cannot last more than 30 days; and all work must be completed within six months.
Can loan proceeds go towards another mortgage?
Yes, up to six months of principle, interest, taxes and insurance while the 203K property is undergoing renovation.
What can a lender do if a rule is broken?
The lender can immediately act to reduce its losses.
Do all lenders offer 203K loans?
No, most lenders do not offer 203K loans. The homeowner will have to locate a cooperative lender; document preparation is more extensive, closing can take from 60 to 90 days, and interest rates are slightly higher.
Are all realtors and agents familiar with the 203K?
No. Many listing agents do not fully understand the 203K program, which leads to difficulty getting an offer accepted.
What is the minimum credit score?
640 is the minimum FICO to be eligible for regular 203K financing.