FHA 203k loans are federally insured loans backed by the Federal Housing Administration. Each loan allows for homebuyers to finance the cost of home improvements within the loan amount. FHA 203k loans offer a solution that helps borrowers and lenders provide a fixed rate loan that covers both the acquisition and rehabilitation of a property.

There are two types of FHA 203k loans available for home buyers and both require only a 3.5 percent down payment. The Limited 203k and the Standard 203k Repair Program.

LIMITED 203K LOAN PROGRAM

The limited 203k permits homebuyers to finance up to an additional $35,000 for repairs into their mortgage to purchase and improve or upgrade the home before move-in or to refinance an existing mortgage and add up to $35,000 for repairs or improvements. Homebuyers can quickly and easily tap into cash to pay for property repairs or improvements, such as those identified by a home inspector or FHA appraiser.

The following repairs can be financed with this program:

  • Repair/replacement of roofs, gutters, and downspouts
  • Repair/replacement/upgrade of existing HVAC systems
  • Repair/replacement/upgrade of plumbing and electrical systems
  • Repair/replacement of existing flooring
  • Minor remodeling, such as kitchens, which does not involve structural repairs
  • Exterior and interior painting
  • Weatherization, including storm windows and doors, insulation, weather stripping, etc.
  • Purchase and installation of appliances, including free-standing ranges, refrigerators, washers/dryers, dishwashers, and microwaves
  • Improvements for accessibility for persons with disabilities
  • Lead-based paint stabilization, or abatement of lead-based paint hazards
  • Repair, replacement, or the addition of exterior decks, patios, and porches
  • Basement remodeling which does not involve structural repairs
  • Basement waterproofing
  • Window and door replacement, and exterior siding replacement
  • Well or septic system repair or replacement

STANDARD 203K LOAN PROGRAM

The Standard 203k permits homebuyers to finance unlimited amount for repairs into their mortgage to purchase and improve or upgrade the home before move-in or to refinance an existing mortgage and repair cost for repairs or improvements to the home. The rehabilitation cost, although unlimited, cannot exceed the after-improved-value of the home, including the sales price.
For example, sales price + rehabilitation cost cannot exceed the after improved value of the home. The extent of the rehabilitation covered by 203k loan may range from relatively minor (though exceeding $5000 in cost) to virtual major reconstruction. It can also cover the conversion of a property of any size to a one- to four- unit structure. The types of improvements that borrower may make using 203k financing include:
  • 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
  • Redesigning floor plans, adding bathrooms
  • Almost any repair is eligible

AFTER-IMPROVED-VALUE APPRAISAL

The value of the property is determined by one of two methods:
(1) the value of the property after rehabilitation plus the cost of rehabilitation, or
(2) 110 percent of the appraised value of the property after rehabilitation, whichever is less.

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