Looking for a home that needs a little TLC?

Education on FHA 203k Loans

Lately I have had a lot of listings and buyer looking for listings that are “fixer uppers”. Some of these can be quite the investment. You should talk out all the details with your agent, pros and cons, because some properties are more than just a fixer upper. However, there are many that just need updating and repairs and this may restore their equity. Allow me to introduce you to the FHA 203(k) loan

This loan is for buyers purchasing a home that needs repairs. Find out if it's right for you.

Are you interested in buying a fixer-upper but don't have the cash to remodel it? Or maybe you have saved money for remodeling and you've found a house you love, but your lender won't allow you to buy it because the house isn't considered habitable without toilets.

There are always properties on the market that weren't maintained by cash-strapped former owners, were treated poorly by renters or were deliberately trashed by former owners who were foreclosed on. Shouldn't there be a way for someone like you to fix up these neighborhood eyesores and bring them back to life?

There is a way, and it's brought to you by the federal government. The Federal Housing Administration's rehab loan product, the FHA 203(k) loan, was designed for individuals who want to rehabilitate or repair a damaged home so they can live in it as a primary residence. These loans are endorsed by the government to encourage lenders to offer what would otherwise be considered a risky loan product

This article will go over how much money you need, the two types of 203(k) loans, eligible properties, eligible repairs and more — in short, what you should know to determine if this type of loan is right for you.

The FHA 203(k) loan lets you include the money needed for repairs and related expenses — materials and labor — in the loan. If you wanted to buy a home where the kitchen had been ripped out, you could include in the loan the price of new cabinets, countertops, flooring, a refrigerator, stove, oven, microwave, sink, dishwasher and garbage disposal, and the cost to design, permit and install it all.

The loan can also include a 10% to 20% contingency reserve for expenses beyond your repair estimates. You can also get up to six months' worth of mortgage payments included to cover the mortgage while you're renovating the home so that you won't have to make a double housing payment.

For the regular 203(k) purchase loan, the maximum mortgage amount is based on the lesser of the as-is value of the property plus rehab costs or 110% of the expected value of the property after rehab. This means that you wouldn't want to buy a house with an as-is value of $150,000 if it needed $25,000 in repairs unless you had an extra $10,000 in cash, because the most you could borrow would be $165,000 (110% of $150,000).

The streamlined loan allows homebuyers to add as much as $35,000 to the purchase price to pay for improvements.

Of course, in any case, you must have the income to support the mortgage — you can't just take out a loan for a certain amount because the house warrants it.



Eligible properties

FHA 203(k) loans are intended for owner-occupants, not investors. The following types of properties are eligible:

Single-family to four-family dwellings.

Existing construction that has been completed for at least one year.

Teardowns, as long as part of the existing foundation will remain.

An existing house that will be moved to a new foundation.

The residential portion of a mixed-use (commercial/residential) property.

FHA-approved condos.

With such a wide range of qualifying properties, almost anyone can find the right property that will qualify for a 203(k) loan.

Regardless of what work you may think the house needs, the lender and FHA have their own requirements that you also must meet. The Department of Housing and Urban Development "requires that properties financed under this program meet certain basic energy-efficiency and structural standards" to "comply with HUD's Minimum Property Standards (24 CFR 200.926d [PDF] and/or HUD Handbook 4905.1) and all local codes and ordinances."

The energy-efficiency standards include caulking, insulation and ventilation as well as using the correct size heating and air-conditioning systems for the home. The home is also required to have smoke detectors near each sleeping area.

You might be surprised by the variety of home repairs and improvements that can be financed with the 203(k) loan. These include, but are not limited to, the following:


Room additions



Site grading and drainage

Bathroom remodeling

Kitchen remodeling, including appliances

Finishing an attic or basement

Structural alterations and repairs

Adding or decreasing the number of units in a dwelling (e.g., single-family home to duplex)

New siding

Second-story additions

Elimination of lead-based paint problems

Heating, ventilation and air-conditioning systems (HVAC)




Energy conservation

Disabled access


Call today if you are looking for a home like this! We can help you find it and connect you with the right mortgage professional!


Thanks and Have a great weekend!

Joymarie Chupein DeFruscio

Keller Williams Realty Group



This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.


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