FHA's Property Rehabilitation (203K) Finance Program
FHA is a government agency that offers mortgage insurance to lenders to encourage them to help finance loans for moderate income borrowers, borrowers with some blemishes on their credit history, and homebuyers who do not want to pay a large downpayment for the purchase of their home.
FHA does not lend money. It does though offer different types of mortgage insurance to lenders, to help them offer financing which can meet the unique needs of some homebuyers. FHA's Property Rehabilitation Program, often referred to as "203k" is an example of this type of program.
The 203(k) program is FHA's primary financing program for homebuyers who want to buy a property that needs extensive repairs.
When buying a house that needs repairs, homebuyers usually have to follow a complicated and costly process. Short-term purchase and improvement loans often have relatively high interest rates, short repayment terms and a balloon payment.
However, Section 203(k) offers a solution that helps both borrowers and lenders. These loans cover both the purchase and the repair of a property. Section 203(k) insured loans save borrowers time and money. They also protect the lender by allowing them to have the loan insured even if the value of the unrepaired property is less than the amount of the mortgage loan.
The extent of the repairs may range from relatively minor (though it must be at least $5000 in cost) to virtual reconstruction: a home that has been demolished or will be razed as part of rehabilitation is eligible, for example, as long as the existing foundation system remains in place.
Section 203(k) insured loans can finance the rehabilitation of the residential portion of a property that also has non-residential uses; they can also cover the conversion of a property of any size to a one- to four- unit structure. The types of improvements that borrowers may make using the Section 203(k) 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.
Not all FHA lenders offer 203k financing. To find a lender that offers 203k mortgages, go to http://www.hud.gov/ll/code/llslcrit.cfm, and select the 203k option at the bottom of the page.
For more information on the FHA Property Rehabilitation Mortgage insurance Program, go to: