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Found the perfect house but it needs a little TLC? Having some problems financing the costs of projects on your Honey-Do list? Well, it might be worth looking at FHA’s 203K loan programs. 203K Loans are offered through mortgage lenders and are administered by the Federal Housing Administration (FHA). With a 203K rehab loan, borrowers can finance the costs of many home improvements and rehabilitation projects with their primary mortgage. Thus, borrowers do not have to take out fixed rate second mortgages or home equity lines of credit (HELOCs) at higher interest rates. These second mortgages may also have shorter amortization periods and potential balloon payments (large lump sum payments). With 203K loans, borrowers end up with single, fixed rate, long term mortgages.
Types of 203K Loans
There are two primary types of 203K loans including 203K Streamline loans and standard 203K mortgages. Standard 203K loans are often used to finance the costs of structural improvements such as a new roof, building an addition, or other major remodeling projects. Streamline 203K loans are intended to facilitate uncomplicated rehabilitation projects or improvements a homes for which plans, consultants, engineers and/or architects are not required.
Examples of the Types of Repairs which may be Allowed with Standard 203K Loans?
- Putting on a new roof, gutters, and/or siding
- Updating or replacing septic systems and other plumbing components
- Repairing or updating flooring (i.e. hardwood floors, tile, carpet)
- Adding accessibility updates for those with disabilities
- HVAC system upgrades, repairs, and/or replacements (aka heating and air conditioning)
- Building additions to existing properties
- Adding or updating decks and patios
- Remodeling kitchens and bathrooms
- Purchasing new appliances
- Waterproofing and finishing basement space
- Improving attic space
- Replacing doors
- Repairing or replacing windows
- Updating electrical systems
- Improvements to make homes more energy efficient
- Site grading and improvements
- Painting the interior and/or exterior of a home
- Dealing with lead based paint issues
With Streamline 203K loans, many of the major structural improvements are not available.
What are some of greatest benefits of 203K financing?
- Creates greater opportunities for homeownership
- Helps promote community redevelopment
- Reduces blight in neighborhoods
- Only one long term, fixed rate loan is needed to purchase/refinance and repair a home
- Interest rates are often very competitive and comparable to other FHA and conventional mortgage programs
Which Lenders offer 203K Loans
You can search for 203K lenders on HUD’s website here: http://www.hud.gov/ll/code/llslcrit.cfm (you’ll see a check box at the bottom of the page where you can select 203K).
Some national and/or multi-state lenders who offer 203K loans are:
Property, Occupancy, and Borrower Eligibility Considerations
- 203K loans can be used for 1-4 unit primary residences (not second homes or investment properties).
- Mixed-use properties may be eligible but repairs and/or improvements must be on the residential piece of the properties.
- FHA approved condominiums
- Property must be at least a year old
- Additional terms and conditions will apply.
Please note that the criteria listed on this page is subject to change. We recommend that you speak with a licensed mortgage professional in your state to learn more about 203K financing and to seek the most-up-to-date information.