What’s An FHA 203(K) Home Loan?
An FHA 203(k) is a rehabilitation loan that can help you purchase or refinance a home that’s in need of repair or modernization. In addition to the cost of the home, the loan also covers the cost of qualified repairs. FHA 203(k) home loans are offered by Federal Housing Administration (FHA) approved lenders. Loans are insured by the U.S. Department of Housing and Urban Development (HUD).
What Are The Benefits?
Buying a house that needs rehabilitation can often be a complicated and costly process. Repairs can drain your savings or investments. Interim acquisition and improvement loans often have relatively high interest rates, short repayment terms and a balloon payment. An FHA 203(k) loan can save you time and money because it combines the purchase cost and the repair cost into a single fixed rate or adjustable rate mortgage.
An FHA 203(k) loan may allow you to consider a home that needs rehabilitation if you’re looking to purchase. With this type of loan, you may benefit from lower interest rates and costs associated with repairs and modernization as compared to financing repairs through other methods like home equity lines of credit, credit cards or personal loans. The interest you pay on your mortgage may be tax deductible, and repairs aren’t stretched out over months or years. You can customize the home to meet your needs. Improvements may also increase home value and resale marketability. However, more parties and steps are involved with FHA 203(k) loans, including appraisers, consultants, contractors, and inspectors. Additional costs may apply.
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Types of FHA 203(k) Loans
Eligible vs. Ineligible Borrowers
- U.S. citizens
- Permanent resident aliens
- Qualified non-profit organizations
- Qualified non-permanent resident aliens
- State and local government agencies
- Foreign nationals
- Corporations or limited liability companies (LLCs)
Eligible vs. Ineligible Properties
The property must have been completed for at least one year.
- 1 to 4-unit attached and detached single family residences and planned unit developments
- FHA-approved condos
- Mixed-use developments (conditions apply)
- Modular homes
- New construction
- Manufactured homes
- Properties with non-conforming construction that cannot be remedied
Homes must be occupied by the owner. No second homes or investment properties. Transaction must be a purchase loan or refinance. Identity of interest (buying from a relative or business partner) is not permitted. Loans are subject to certain appraisal and construction requirements
Eligible major structural repairs include
- Structural alterations
- Chimneys and skylights
- Additional bathroom installation
- Attic and basement finishing
- Termite damage repair
- Existing detached garbage repair
- New attached garages
- Bathroom and kitchen moderization
- Health and safety hazard removal
- HVAC repair or replacement
- Electrical and plumbing systems
- Major landscaping improvements
- Grading and drainage improvements
- Swimming pool repairs (Greater than, or equal to, $1,500)
Eligible non-structural repairs include
- Roofs, gutters and downsprouts
- Existing HVAC systems
- Plumbing and electrical systems
- Flooring and carpeting
- Interior and exterior paint
- Appliances (purchase and installation)
- Accessibility improvements
- Exterior decks, patios and porches
- Basement finishing (non-structural)
- Basement waterproofing
- Weatherization upgrades
- Window and door replacements
- Wall residing
- Septic and well systems