FHA 203K are perfect those seeking to create some "sweat equity" in their homes.

Program highlights of the FHA 203K mortgage program.

If the HUD home you’re interested in is in serious need of renovation, you should consider the FHA 203K mortgage program. This program is intended for the owner-occupant, not investor who is planning on intending to use FHA financing for the purchase of the home. If the home is more of a construction project rather than a renovation, they you should consider obtaining a conventional construction loan to complete the property.

Please refer to the listing codes section of this website for more information on these codes, as they determine if the property will qualify for the 203K program. The applicable listing code should be as follows: FHA financing: Uninsured (UI) 203K eligible. In this type of property, the rehabilitation costs of the home are expected to exceed $5,000.

Many borrowers choose to utilize the 203K loan to finance their purchase for a lot of good reasons.

1. The down payment is minimal, an FHA insured loan requires as little as 3% down.

2. The 203K rehab is a construction loan and permanent loan, all wrapped into one. A single closing can finance the acquisition, rehab and even payments on the purchase.

3. Borrowers can create their own “sweat equity” but performing a number of the improvements themselves.

4. As mentioned above, you can avoid up to six months of mortgage payments into the loan. This allows the borrowers to avoid paying two housing payments while the home is under renovation.

5. A multi-unit property can be financed, a 203K loan can be used up to four units.

6. For disable borrowers, the 203K loan can be use to bring the property up to standards to meet the needs of disabled persons.


How to accomplish a FHA 203K mortgage:

1. Find the HUD home you want to make an offer on. Utilize an approved real estate agent to make sure the property is eligible (see listing codes).

2. Find an approved FHA lender that is knowledgeable about rehab loans and go through the pre-approval process.

3. Following the guidelines provided in this website, utilize your agent to make a formal bid for the HUD home.

4. Work with your approved FHA lender in assembling a detailed proposal for the proposed repairs on the property. 

5. Per the loan approval process, have the home appraised “as complete”, meaning determine the value of the home after all improvements are made.

6. Proceed with loan approval and closing. When the loan closes, HUD will be paid the purchase price and the remaining funds are put into an escrow account to pay for the renovations. The amount of the loan should also include a contingency reserve of 10% to 20% of the renovation costs, as experience has proven that many unexpected costs can arise.

7. As construction work is completed, the funds in the escrow account are released to the contractors hired for the renovations. The lender will be responsible for disbursement after the work is complete and it has been determined that are no liens on the property.

8. At completion time, any unused funds left in the escrow account are used to reduce the principal of the loan.

Please click on the links below to find out more specific on the 203K program:

Eligible improvements for the FHA 203K program

Eligible properties for the FHA 203K program.


Need more information about HUD homes available in your area, click here.

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