What You Should Know About FHA 203(k) Loans
January 15, 2013
The basic FHA home loan program is also called the FHA 203(b). But the FHA also offers a home loan guaranty program called the 203(k). This program is described on the FHA/HUD official site as a home loan guaranty for the purpose of helping "homebuyers and homeowners to finance both the purchase (or refinancing) of a house and the cost of its rehabilitation through a single mortgage or to finance the rehabilitation of their existing home."
The 203(k) program offers an important alternative to conventional mortgages that offer the same thing, although in more complex ways. According to the FHA, "When buying a house that needs repair or modernization, homebuyers usually have to follow a complicated and costly process. The interim acquisition and improvement loans often have relatively high interest rates, short repayment terms and a balloon payment."
The FHA 203(k) simplifies the loan process, featuring one fixed or adjustable-rate mortgage that finances the purchase and rehab of the property. According to the FHA, "Section 203(k) insured loans save borrowers time and money. They also protect the lender by allowing them to have the loan insured even before the condition and value of the property may offer adequate security."
Even with this option, there are plenty of borrowers who want things simpler still--what about the homeowner who needs funds for rehab work that isn't as extensive as the kind financed under the FHA 203(k) as described above? Yes,there is another way for borrowers to get a loan--if you need to begin rehab work with an FHA guaranteed loan for a scaled-down set of plans.
"For less extensive repairs/improvements," the FHA official site advises, "see Streamlined 203(k). For housing rehabilitation activities that do not also require buying or refinancing the property, borrowers may also consider HUD's Title I Home Improvement Loan program."
Ask your loan officer about the availability of 203(k) streamline funds for a home improvement project, to repair weather-related damage or other needs. If you aren't sure whether your application fits the FHA guidelines for this program, have a look at this list of approved uses for 203(k) funds:
The 203(k) program offers an important alternative to conventional mortgages that offer the same thing, although in more complex ways. According to the FHA, "When buying a house that needs repair or modernization, homebuyers usually have to follow a complicated and costly process. The interim acquisition and improvement loans often have relatively high interest rates, short repayment terms and a balloon payment."
The FHA 203(k) simplifies the loan process, featuring one fixed or adjustable-rate mortgage that finances the purchase and rehab of the property. According to the FHA, "Section 203(k) insured loans save borrowers time and money. They also protect the lender by allowing them to have the loan insured even before the condition and value of the property may offer adequate security."
Even with this option, there are plenty of borrowers who want things simpler still--what about the homeowner who needs funds for rehab work that isn't as extensive as the kind financed under the FHA 203(k) as described above? Yes,there is another way for borrowers to get a loan--if you need to begin rehab work with an FHA guaranteed loan for a scaled-down set of plans.
"For less extensive repairs/improvements," the FHA official site advises, "see Streamlined 203(k). For housing rehabilitation activities that do not also require buying or refinancing the property, borrowers may also consider HUD's Title I Home Improvement Loan program."
Ask your loan officer about the availability of 203(k) streamline funds for a home improvement project, to repair weather-related damage or other needs. If you aren't sure whether your application fits the FHA guidelines for this program, have a look at this list of approved uses for 203(k) funds:
- structural alterations and reconstruction
- modernization and improvements to the home's function
- elimination of health and safety hazards
- changes that improve appearance and eliminate obsolescence
- reconditioning or replacing plumbing; installing a well and/or septic system
- adding or replacing roofing, gutters, and downspouts
- adding or replacing floors and/or floor treatments
- major landscape work and site improvements
- enhancing accessibility for a disabled person
- making energy conservation improvements
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