When consumers consider an FHA loan, they typically consider the 203B loan program, which contains specific requirements for the property’s condition and habitability. However, for properties that are considerably damaged, an FHA 203(k) rehabilitation loan may also be an option. The FHA 203k loan allows a buyer to purchase or refinance a home in “as is” condition and complete major renovations or just some updating under one loan that includes funds for the purchase AND all rehab costs, inspections and up to 6 month’s carrying costs.
In consideration of the volume of foreclosed properties on the market and outdated homes needing work, this loan is a great vehicle to assist buyers who may not have the available funds to secure a typical construction loan for financing. In addition, because construction loans are short term and carry very high interest rates, buyers would need to refinance after the updating is complete.
Benefits of 203k loan program:
- Government insurance – making this a safe loan
- Rehab loan limits up to $410, 000 for single family home and $788,450 for a 4-unit property in Cook County, IL. (Visit HUD’s website for other county limits)
- Low 3.5% down payment
- Down payment and closing costs can be gifted
- Minimum 640 credit score
- Multiple co-borrowers allowed (even non-occupying)
- Multiple types of income allowed
- Must be owner-occupied for at least 1 year following completion of renovations
- Up to 6 months mortgage payments can be put into loan alleviating the worry of paying rent and mortgage while the work is being completed.
- No self-help – Licensed and insured contracted provided
- FHA 203K Consultant required for borrower protection
- If purchase timeline followed, can close 203k rehab loan in 60 days
- Borrower often purchases home under value and can gain instant equity.
Repairs/Improvements allowed, but not limited to:
- Updates to kitchens & bathrooms
- Room additions to home & exteriors additions (decks, patios & porches)
- Basement finishing, remodeling & waterproofing
- Elimination of health & safety hazards
- Flooring, tiling & carpeting
- Plumbing & electrical systems
- Heating, ventilations & AC
- New exterior siding, windows, doors
- Exterior & interior painting
- Roofs, gutters, & downspouts
- Handicap accessibility
- Construction or rehab of detached structure
- Repair of structural damage or relocation or load-bearing walls
- Complete tear-down of property as long as foundation remains in place
- No self-help is allowed. FHA Consultant must oversee renovations.
- Primary residence
- Single family dwellings
- 1-4 family units
- Must be completed for one year
- Owner Occupied ONLY
- Conversion of single family home or multi-unit dwelling decreasing/increasing number of units
- Great for Real Estate Owned, foreclosed, estate sale and outdated properties
Christine DePaepe is recognized as one of the best 203(k) specialists in the nation, and has well-established expertise with this loan product. In fact, Terry Savage, Chicago Sun-Times nationally syndicated columnist, recently featured Chris in an article that addressed her overall industry expertise. If you are considering a 203(k) mortgage loan, be sure to give Christine DePaepe a call. Her conscientious, hands-on approach to walking her clients to through the process will ensure your comfort from contract through closing.