Are you interested in purchasing a fixer-upper and turning it into your dream home? Or, maybe you just want to make some renovations to your current home. However, you’ve realized with all the renovations needed to the home, you can’t really afford it. Or, perhaps, you’ve find out that you can’t get a mortgage loan, because your lender considers the home to be uninhabitable. What can you do? The FHA 203k Rehabilitation Mortgage Insurance Program may be your solution.

The FHA 203k program is a government-backed loan that enables you to borrow money toward the purchase of a home and renovations that need to be made to it. Or, you can use the loan to make home improvements to your existing home. With the FHA 203k program, you don’t have to get a loan for the home purchase and another for the home repairs. One loan handles both.

Two Types of FHA 203k Loans

FHA offers two types of 203k loans:

• Regular FHA 203k loan – Typically, for larger projects that require more than $35,000 in repair costs or for projects that require structural repairs. The minimum amount that can be borrowed is $5,000.
• Streamline FHA 203k loan – For projects requiring less extensive repairs, the maximum costs that can be financed are $35,000. None of the repair costs can be on structural repairs. 

Loan Terms and Conditions

Some terms and conditions of the FHA 203k loan include:

• The loan can be a 30-year adjustable-rate or fixed-rate mortgage.
• The value of the home cannot exceed a specified maximum amount.
• You can make a down payment of as little as 3.5%.
• You must plan to live in the house.
• Repair work must begin within 30 days from closing
• The home can’t be vacant for more than 30 days.
• All work must be completed within six months.
• Borrowers must work with an approved, licensed contractor.
• If you want to do some or all the repair work yourself, you need make arrangements with and be approved by your lender.

Qualifying Property Types

To qualify for an FHA 203k loan, the property can be:

• A single-family home, townhome or a multi-unit (up to four units).
• Condos must be in an FHA-approved complex with no more than four units in the building.

Eligible Repairs and Improvements

Here is the HUD-approved list of repairs/improvements for a regular and streamlined 203k loans:

• Roofs, gutters and downspouts
• HVAC systems
• Plumbing and electrical
• Kitchen and/or bathroom remodeling (minor renovations for streamlined 203k loan)
• Flooring
• Interior and exterior painting
• New windows and doors
• Weather-stripping and insulation
• Energy efficient improvements
• Improvements for people with disabilities
• Decks, patios or porches
• Basement completion and waterproofing
• Septic or well systems
• Purchase of new kitchen appliances or washer or dryer

Repairs that are not permitted include:

• Landscaping or yard work
• Installation of outdoor luxury items (pool, tennis courts)
• Fixing structural damage (streamlined 203k loan)
• Moving a load-bearing wall (streamlined 203k loan)
• Room additions or add-ons to the home (streamlined 203k loan)

For More Information

If you’re interested in purchasing a fixer-upper or you want to upgrade your current home, the FHA 203k loan program may be the right financing option for you. Contact the mortgage experts at Grandview Lending, located in Indianapolis, IN, for more information. As a mortgage broker company, we have access to lots of different loan options. We can review your situation and find the best mortgage solution based on your needs. 

Photo credit: 123RF / kurhan