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HUD’s FHA 203(k) Program Allows Home Buyers to Rehab a Home with a Low Down Payment
By: Ann BelfieldThe Federal Housing Administration (FHA), which is part of the Department of Housing and Urban Development, provides a Section 203(k) program for the rehabilitation and repair of single family properties. The FHA insures the loans which are offered through approved lenders.
This loan program is unique compared to other loan programs because it allows the borrower to finance both the acquisition of the property and the rehabilitation of the property under one loan. There are two options offered under the Program, one is FHA’s Streamline 203(k) Mortgage and the other is FHA’s 203(k) Mortgage.
Under the Streamline 203(k), buyers can finance a minimum of $5,000 up to a maximum of $35.000 into the loan to improve or upgrade their home before moving in. This allows the buyer to tap into money to pay for repairs and improvements, identified by a home inspector or FHA appraiser. The Streamline(k) document found in the HUD Mortgagee Letter will provide more detailed information on the types of repairs, improvements, costs, and other factors that are specific to the program.
FHA’s 203(k) Mortgage program is HUD’s primary program for the rehabilitation and repair of single family properties. The properties that are eligible can be up to four dwelling units and must have been constructed for at least one year. The advantage of the 203(k) program over other loan programs is that the FHA program allows a low down payment, around 3.5%, and it allows the purchaser to take out one loan to cover the purchase and costs of upgrades.
Below is a summary of the topics that are covered on HUD’s “Rehab a Home with HUD’s 203(k)” web site.
FHA 203(k) Rehabilitation Program
What is the Maximum FHA Loan Amount?
The FHA loan limit, as of February 26, 2009, in Maricopa County, Arizona, is $346,250. The 203(k) program allows for up to 110% loan-to-value.
Eligible Properties
(A) One to four-family dwellings that have been completed for at least one year.
(B) Homes that have been raised with at least the existing foundation in place.
(C) Property conversions, i.e. one family dwelling to two, three, or four-family unit.
(D) Moving of an existing home to another site
(E) The loan may be originated on a “mixed use” residential property with stipulations.
Eligible Improvements
Painting, room additions, decks and other items, such as solar energy
Condominium Unit
For individual units that have been approved by FHA, the Dept. of Veterans Affairs, or are acceptable to FNMA.
Required Improvements
All of the rehabilitation construction and/or additions financed under the Section 203 (k) must comply with the following:
(A) Cost Effective Energy Conservation Standards
(B) Smoke Detectors
Required Appraisals
The appraiser must provide an opinion of the After Improved value of the property and may have to provide an As-Is Value.
Recently Acquired Properties
Homebuyers who purchase the property with cash, can refinance using the 203 (k) with 6 months from purchase.
Architectural Exhibits
The property must comply with HUD’s Minimum Property Standards (24 CFR 200.92d and /or JUD Handbook 4905.1).
All information is deemed reliable, but not guaranteed.
Source: FHA 203 (k) Rehabilitation Mortgage Insurance.
List of HUD Approved Lenders in Arizona: The Home & Communities web page found within the HUD website provides search for HUD approved lenders by state, city and zip code.
FHA’s Energy Efficient Mortgage Program (EEM), which can be linked to a 203(k) loan, allows a borrower to finance into the loan, 100% of the cost of eligible energy efficient improvements, up to 5% of the property’s value, not to exceed $8,000 or $4,000, whichever is greater. For more information on the Program, see FHA’s EEM website. The FHA offers other programs that can be found on their Resource Site. The site will also help you check to see if you qualify for one or more of their programs.
Details of FHA’s 203(k) Program are lengthy and contain many intricate details, but it is a great way for purchasers to revamp a distressed property and/or add energy savings features to a property. Click here and ask for your FREE list of properties available in the Gilbert, Mesa, Phoenix, and Scottsdale area of Arizona.
