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Home renovation loan from the FHA 203(k) program.

The government’s Federal Housing Administration (FHA) loan program provides homeowners with low cost financing known as the 203(k) program. The interest rates will vary, but in general the funds are provided at a much lower cost to anyone that is seeking money for their home. It is a form of financial assistance that is fully backed by the FHA.

The mortgage that a homeowner can receive from the federal government FHA loan will allow the costs of home improvements, repairs and rehabilitation to be included. So the money borrowed is “pre-approved” to help pay for those expenses, and this is noted in the application for the federally insured loan amount that the borrower originates. So this type of financing and loan product will help the homeowner as they will not need to come up with cash. It also stops them from having to take out another loan or mortgage to pay for any work that needs to be done on the home.

Funds can also be used for the purchase of a house. Not only can someone purchase a home with the renovation financing program, but it also allows the buyer to finance and pay for any repairs and-or needed home improvements. So FHA 203K funds can in effect assist someone with buying an older, fixer upper type property.

The program can be used by individuals and families who are looking to purchase a new home, and it can also be used by existing homeowners who just want to to perform repair or renovation work on their current property. Or the older, needing repair type home as noted above. The bottom line is that it provides homeowners with a responsible way to purchase a fixer-upper property or a home that needs repairs. There are also separate programs as well that are similar, with a focus on FHA energy conservation updates, such as the Energy Efficient Mortgage.

Details of the FHA 203(k) loan program

The are conditions that need to be met when someone receives the loan. The work on the home or property needs to be completed within six months after escrow closes. Sometimes the repairs or improvements that need to be completed are major, and the home may even be unlivable until the rehabilitation is complete. In this case borrowers also have the option of putting up to an additional six months of mortgage payments on the end of the loan if they don't want to live in the house while the work is being completed.




What are the income limits and other conditions

This type of financing is made available to certain banks and lenders by the U.S. Department of Housing and Urban Development (HUD). Thousands of people have taken advantage of this program each year since it was founded in 1978. The FHA 203(k) program has provided these buyers with the financing and funds they need that are necessary to buy their first home as well as improve it at the same time.

It can also help people greatly improve their current home. So if someone has lived there for many years, the money can assist them as well. There are no income conditions. The Federal Housing Administration 203(k) loan is currently available to borrowers of all income levels, it can be used for homes with one to four units, and the loans can also be made to homeowners who plan to occupy the home.

Terms of the FHA 203(k) renovation loan

They are very generous and flexible to borrowers. The FHA 203(k) loan offers low down payments, interest rates and flexible qualifying criteria.

  • FHA down payment (3%)
  • No income limits for applicants
  • FHA standard guidelines and procedures
  • Finance up to 6 months of mortgage payments
  • Flexible credit qualifying
  • Assumable loans and mortgages
  • Purchase a home or Refinance and Improve an existing one all in one loan
  • No up front mortgage insurance is required
  • A minimum improvement of $5000 is required

This a great option for people looking to buy and/or repair a home, whether it is older or newer. The 203(k) loan will in effect combine a home's purchase price and cost of repairs and improvements into one fully insured FHA mortgage product. One of the tremendous benefits of this loan product is that it requires only a 3.5% down payment, so it makes the purchase of a home very affordable.

The section 203(k) program that is administered by the FHA provides funds to both current and prospective homeowners to make repairs and/or pay for the renovation work. What homeowners will end up with is a single FHA insured mortgage that they need to pay. The total amount of the loan will consist of the home's purchase price (or current loan balance in the case of an existing homeowner) plus the estimated costs of the construction work that needs to be performed.





Using HUD 203K loan for purchasing foreclosures

This product is helping the nation recover from the housing crisis as well. The 203(k) program provides a great opportunity for buyers of foreclosed homes as it can help repair them, The FHA program can also help real estate investors to sell foreclosed properties and homes that a bank may have repossessed in a short sale.

The reason why is that many foreclosed properties were not properly maintained, and the mortgage will provide potential buyers with financing that can help them pay for any work that needs to be done on the home. It can help people who want to renovate a home, and can aid those who desire to buy a fixer-upper or a property that needs some work.

How to apply

Dial 800-225-5342 to speak to the FHA and to reach their information line. Another option is to call a HUD certified housing counselor in your area. Read more about HUD counselors.

Or contact your bank or lender and ask them about this loan product. Almost all lenders have relationship with the Federal Housing Administration (FHA), which is part of the Department of Housing and Urban Development (HUD), Most local as well as national lenders can accept applications for the 203K program.

By Jon McNamara

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