New Jersey’s leading provider of FHA 203K Mortgages for over 31 years.
If you want to purchase a house that is need of repairs before it is ready to be occupied, an FHA 203K (Full) or a FHA 203K (Limited) mortgage can be used to complete the transaction. Not all properties are move-in ready; therefore, any health or safety issues as determined by an FHA appraiser would have to be completed prior to the closing of the mortgage. For these reasons, a traditional FHA 203B mortgage is not available for the purchase of these types of properties.
A lender will not provide a mortgage on a house that is not in livable condition until repairs have been completed prior to the loan closing, but you cannot have the repairs completed until you buy the house. Talk about a catch 22! A solution to this problem is the FHA 203K (Full) or the FHA 203K (Limited) mortgage.
The FHA 203K (Limited) mortgage is the right choice when the rehab costs plus the required rehab reserves do not exceed the $35,000 threshold. As an added benefit, the “Limited K” does not require the need to hire an FHA Consultant to assist in the management of the rehab project….which is a cost savings to you. Whereas, when the rehab cost exceeds the $35,000 threshold, the FHA 203K (Full) is required along with the assistance of an FHA Consultant.
The FHA 203K is such an exciting program because unlike purchasing a property that is need of repairs and then self-funding or obtaining secondary financing to complete the repairs, you can now have all of these costs rolled into one low rate fixed mortgage.
What Are The Benefits?
- Complete the rehabilitation quickly
- Buyers of distressed or outdated homes often have big dreams about what the house will look like one day. When owners are funding the projects out of pocket, it might be several years before enough money is saved to turn those ideas and aspirations into reality. With an FHA Standard 203(k) mortgage the funds to begin work are available right away and the renovations can be complete within weeks or months
- Live elsewhere until the work is complete
- This program allows for financing the cost of alternate housing for up to six months. There is no need to live in a construction site or force contractors to work less efficiently due to the home being occupied during the renovation
- Refinance options available
- Not strictly a purchase program, the FHA Standard 203(k) Renovation Loan can be an excellent solution for homeowners looking to finance major improvements to an existing property
Eligible Property Types
Following specific guidelines, it can also be used to convert a building from a larger number of units down to 4 or less, as well as improvements (interior only) on an FHA-approved condominium unit.
Although FHA 203(k) loans are only offered for owner-occupied properties only, provisions allow for the financing of mixed-use buildings, such as those with retail or commercial space combined with residential. In these cases, the 203k loan can only be used for the residential portion of the building.
Eligible 203k Rehab Projects
- 1-4 Unit Properties where one of the units must be owner occupied
- Conversion of a larger number of units down to 4 or less
- Structural alterations and additions
- Renovation of the residential portion of a mixed-use building, which combines retail or commercial space with residential
- Uninhabitable properties (a tear-down), as long as part of the existing foundation will remain.
- Relocation of an existing house to a new foundation
- Upgrade or modernization of central air/heat, plumbing, and electrical systems
- Repair or replace well and septic systems
- Repair termite or moisture damage
- Elimination of health and safety hazards such as asbestos & lead based paint abatement
- Basement waterproofing
- Remodeling of kitchen and bathrooms
- Roofing, gutters, downspouts
- Flooring, tiling, and carpeting
- Interior and exterior painting
- Siding, windows, doors, and trim work
- Energy conservation improvements
- New free standing appliances
- Foundation repair
- Addition or replacement of exterior decks, patios, terraces, and porches
- Permanent hardscape such as driveways, walkways, retaining walls, and fences
Program Overview
The Federal Housing Administration (FHA), which is part of the Department of Housing and Urban Development (HUD), administers the FHA 203K mortgage program. This program makes it possible to purchase or refinance a property and include in the loan the cost of the repairs and improvements.
HUD does not make direct loans to people to buy houses. Instead, approved lenders throughout the country offer this loan because it is insured by the government. An FHA 203K loan is available only to people who will occupy the house. It cannot be used to purchase second homes or investment properties.
The loan program was designed to help with community and neighborhood revitalization as well as to expand home ownership opportunities. For this reason, the down-payment requirement is 3 percent of the total cost—acquisition and repairs.
Program Requirements
In order to get an FHA 203K loan to purchase a property, a homeowner must meet requirements outlined by HUD. These requirements are as follows:
- The first step is to find a property that requires repairs before you can live in it. Submit an offer to purchase this house. Your purchase and sale contract must specify that you will be using an FHA 203K. Your offer should be contingent on your getting approved for this loan.
- The FHA 203K loan is insured by HUD and only qualified lenders such as The Loan Tree are approved to offer this loan. Since the loan includes rehab costs, you must include a detailed list of repairs that will need to be made and the cost for each repair.
- The Loan Tree will have requirements that you must meet in order to qualify for the loan. These will usually include minimum credit scores, debt-to-income ratios and proof of income. You will need to meet all of the lender’s requirements in order to be approved for the loan.
- Once your loan is approved, a date will be set for closing. At closing, the seller will be paid. The money for rehab costs will be placed into an escrow account that is controlled by the lender.
- After closing, your contractor will begin the rehab work. At certain milestones, the contractor will list work that has been completed. The lender will order an inspection to verify the work has been completed satisfactorily. If the work passes inspection, the lender will be paid from monies in the escrow account.
The FHA 203K government insured mortgage program allows for the purchase of a 1-4 family owner occupied home, a condo or a townhome where repairs are needed to bring the property into a livable condition. Why not call or email us for additional information at 732-988-5000 x202 or akelly@theloantree.com. Or you can click here MORE INFORMATION and we will respond to your request as soon as possible.
