Understanding the FHA 203K Loan Program and How It Can Benefit Home Buyers

Learn more about what an FHA 203k loan is, and how it can help you get into the home you want even if it needs repairs. Find out more about this loan and how you can get one!

What is an FHA 203k Loan?

How Does it Work?

Who is This Loan Good For?

What Homes Qualify For This Loan?

Helpful Tips When Applying For 203k Loan

The FHA 203k loan is an FHA loan that allows the borrower to purchase a home in need of repairs, and wrap the cost of the repairs right into the loan. You can even use the loan for updates on a home. Common items are kitchen/bath remodel, new appliances, new windows, and new flooring. Energy efficiency is another option that is becoming popular with the 203k, too!

The process of the 203k loan is similar to a regular loan, with the addition of a couple of steps. First, in a 203k loan, you will need to have a contractor give you an estimate for the improvements that you want to make. Second, your lender will provide the estimate to an appraiser who will go out to the property and appraise it with an after repair value to make sure that the total amount of repairs do not exceed the actual repaired value of the home.

Example

$100,000 purchase price

$20,000 repair estimate

$120,000 total

This means that the appraisal must come in at $120,000, or more with the chosen improvements.

Anyone who does not have enough money to make the repairs on the home that they want is a perfect candidate for this loan. Especially those with a limited budget, or that do not want to spend money out of their pocket to pay for upgrades. The purchaser must be an owner occupant, though.

Residential one to four family homes that have been completed for at least one year are eligible, as well as condominiums that have FHA eligibility. This pretty much covers 99% of home buyers!

Pick a lender with experience in this type of loan! Many people will tell you that they can do this loan, however that doesn't mean that they are proficient in the 203k loan process.

Be up front with your contractor and tell them how they will be paid. The pay structure is one half up front, and the last half is paid upon completion.

Try to keep repairs to non-structural and under $35,000, so that you can use the 203k streamline process.

If possible, use a contractor that has done work that involved this type of loan before. This way they will be familiar with the paperwork process.

Be prepared for the loan to take a little longer to close due to the added steps involved.

If not, ask them why! This is a great program that is affordable to everyone.