FHA 203K Mortgage - for Home Purchase and Rehabilitation

Sam

Are you planning to purchase a property and then renovate it? Well then, you may go for a rehabilitation mortgage. The FHA's 203K mortgage program gives you the opportunity to obtain financing both for purchase as well as home improvement.

The 203K program allows you to cover up the costs of home purchase and rehabilitation with a single home loan. Important features of this program include:

You can qualify for 15 and 30 year fixed rate mortgage. Adjustable rate mortgages are available to owner-occupants only.
These home loans are assumable.
The loan can be used to refinance the existing mortgage against your home and then rehabilitate the property.

The maximum loan amount is calculated as the lesser of:

The appraised property value prior to rehabilitation, along with the costs of the repair work.
110% of the expected market value of the property after the rehabilitation work is completed.

The property types eligible for this kind of home loan include:

1 to 4 unit owner-occupied primary residences. These include single family dwellings and planned unit developments.
Manufactured homes built upon the standards followed by HUD.
A 1-unit property converted to 2-to-4-unit properties, a 4-unit property converted to 3-units or less.

The 203k home loan is insured by HUD up to the maximum allowable limit. This is done in order to reduce the risk to the lender in approving the loan. HUD endorses the mortgage just after the loan proceeds are offered and a rehabilitation escrow account is set up.

The Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NUCA) insures the interest bearing escrow account. The cash for rehabilitation is withdrawn from the escrow account which also includes a contingency reserve. The reserve acts as a source of extra cash and is specially required if the existing construction is less than 30 years old.

A rehabilitation mortgage helps in reducing the costs of financing. This is because borrowers are required to pay closing costs only once. Moreover, the funds can cover up all kinds of rehabilitation in the property.

Related Forum Discussions

Mike · Joined: 31 May 2009 Posts: 12 5.27 Dollars($)

Good post by the way. It also has been common practice to take larger units and mixed use properties and reduce the number of units to achieve the 1-4 during the course of construction. In addition with regards to mixed use they only look at the residential units for the 1-4 so you could potentially have 1-4 stores or shops under 4 residential units. I love thie program. Where in CA are your offices? I would like to discuss your consultant needs. M

Jessica · Posted: Mon Jun 01, 2009 5:59 am Post subject:

Hi Mike,

Welcome to our community forums.

It is true that the 203K program has been of immense help to those who've tried to purchase homes and then remodel them the way they want.

As for the offices, I think you need to contact Sam, the Site Admin through pm or email. You'll get Sam's email address from the Contact Us page.

Regards,

Jessica

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