FHA 203K are perfect those seeking to create some
"sweat equity" in their homes.
Program highlights of the FHA 203K mortgage program.
If the HUD home you’re interested in is in serious need of
renovation, you should consider the FHA 203K mortgage program. This
program is intended for the owner-occupant, not investor who is planning
on intending to use FHA financing for the purchase of the home. If the
home is more of a construction project rather than a renovation, they
you should consider obtaining a conventional construction loan to
complete the property.
Please refer to the listing codes
section of this website for more information on these codes, as they
determine if the property will qualify for the 203K program. The
applicable listing code should be as follows: FHA financing: Uninsured
(UI) 203K eligible. In this type of property, the rehabilitation costs
of the home are expected to exceed $5,000.
Many borrowers choose to utilize the 203K loan to finance their
purchase for a lot of good reasons.
1. The down payment is minimal, an FHA insured loan requires as little
as 3% down.
2. The 203K rehab is a construction loan and permanent loan, all wrapped
into one. A single closing can finance the acquisition, rehab and even
payments on the purchase.
3. Borrowers can create their own “sweat equity” but performing a number
of the improvements themselves.
4. As mentioned above, you can avoid up to six months of mortgage
payments into the loan. This allows the borrowers to avoid paying two
housing payments while the home is under renovation.
5. A multi-unit property can be financed, a 203K loan can be used up to
6. For disable borrowers, the 203K loan can be use to bring the property
up to standards to meet the needs of disabled persons.
How to accomplish a FHA 203K mortgage:
1. Find the HUD home you want to make an offer on. Utilize an approved
real estate agent to make sure the property is eligible (see listing
2. Find an approved FHA lender that is knowledgeable about rehab loans
and go through the pre-approval process.
3. Following the guidelines provided in
this website, utilize your agent to make a formal bid for the HUD home.
4. Work with your approved FHA lender in assembling a detailed proposal
for the proposed repairs on the property.
5. Per the loan approval process, have the home appraised “as complete”,
meaning determine the value of the home after all improvements are made.
6. Proceed with loan approval and closing. When the loan closes, HUD
will be paid the purchase price and the remaining funds are put into an
escrow account to pay for the renovations. The amount of the loan should
also include a contingency reserve of 10% to 20% of the renovation
costs, as experience has proven that many unexpected costs can arise.
7. As construction work is completed, the funds in the escrow account
are released to the contractors hired for the renovations. The lender
will be responsible for disbursement after the work is complete and it
has been determined that are no liens on the property.
8. At completion time, any unused funds left in the escrow account are
used to reduce the principal of the loan.
Please click on the links below to find out more specific on the 203K
Eligible improvements for the FHA 203K
Eligible properties for the FHA 203K