You’ve found it! The home that has “good bones,” is in the perfect neighborhood, and is built in the architectural style you love. There’s “only” one problem: The home is a “diamond in the rough.” Or it flat-out needs major renovation. FHA provides a program for purchasing and renovating a home with one home loan. This eliminates the two-step process of financing repairs and renovation needed for getting a typical home loan. Here’s how an FHA 203(k) loan works.
According to HUD, the parent agency of FHA, the 203(k) loan program is intended to help borrowers avoid the high costs and shorter loan terms typically associated with interim financing required before and during renovation. The renovation portion of the proceeds of an FHA 203(k) loan are held in escrow with funds being released in stages as work is completed. HUD-approved inspectors visit your property to ensure that each stage of the renovation work is performed according to HUD guidelines.
FHA 203(k) Home Loan Funds Purchase and Renovation
The FHA 203(k) mortgage loan program allows FHA approved lenders to approve a home loan or refinancing based on the estimated as-repaired value of the home. Properties eligible for FHA 203(k) mortgage loans include one-to-four family residences subject to FHA 203(k) program requirements:
- Single family homes may be razed but must have part of the home’s original foundation intact.
- Proceeds of FHA 203(k) mortgage loans for renovating condominium units may only be used for interior repairs except for installing firewalls.
- Renovation may include converting a one unit home to up to four units in accordance with zoning laws, or a unit residential unit can be renovated to include one to four residential units.
- Residential units added to a single family residence must be connected to the original residence.
- Specialized renovations for mixed-use properties and for attaching modular units or another house to an original structure are eligible for FHA 203(k) loans under specific conditions. Contact FHA approved lenders for more information.
How to Get an FHA 203(k) Loan
FHA offers the government’s equivalent of private mortgage insurance to participating mortgage lenders; it does not directly provide home loans or refinancing. Check with FHA lenders to check on current mortgage rates and the availability of FHA 203(k) home loans.
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