New Jersey's leading provider of FHA 203K mortgages for the past 30 years. This flexible program can be used for both purchase and for refinance transactions.
If you want to purchase a house that is need of repairs before it is ready to be occupied, an FHA 203K (Standard) or an FHA 203K (Limited) mortgage can be used to complete the transaction. The limited program is designed for renovation projects that do not exceed $35,000 and do not involve structural repairs.
Not all properties are move-in ready, are free from health & safety issues or have all of the utilities turned on. Therefore, these deficiencies 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 buying the house, but you cannot initiate the repairs until you buy the house. Talk about a catch 22! A solution to this problem is the FHA 203K 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 or involves structural repairs, the FHA 203K (Standard) is needed with the assistance of an FHA Consultant.
Eligible Property Types
The typical property types include 1-4 unit owner occupied homes. However, following specific guidelines, the FHA 203K 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 203K 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
- Kitchen and bath remodels
- Plumbing and electrical upgrades or repairs
- Decks, patios and porches
- Windows, siding, roofing and doors
- Structural alterations and additions to the existing structure
- Modernization and improvements to the home's function
- Uninhabitable properties (a tear-down), as long as part of the existing foundation will remain
- Relocation of an existing house to a new foundation
Program Overview
The Federal Housing Administration (FHA), which is part of the Department of Housing and Urban Development (HUD), administers the FHA 203K loan 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 as little as 3.5 percent of the total cost—purchase price and rehab costs.
Program Requirements
In order to see if you qualify for an FHA 203K mortgage to purchase or refinance a property, you must meet requirements outlined by HUD. To determine if you meet these requirements, please refer to the steps below:
- Your first step is to contact us to discuss your options and to confirm that you are pre-approved for an FHA 203K mortgage to purchase or refinance your home
- If qualified, you should then obtain the architectural prints (if needed) to obtain written estimates from your selected qualified general contractors (GC)
- Once you have selected a GC for your project, please let us know so that we can assist you with referring a HUD licensed FHA consultant (if needed). If a Consultant is not needed, we will initiate the application paperwork at this time
- If a Consultant was needed, please let us know when they have completed their Specification of Repair Report (SOR). Once completed, we will initiate the application paperwork at this time
- If you're purchasing a home, pleased remember that the contract of sale must note that the mortgage you are applying for is an FHA 203K
- The FHA 203K loan is insured by HUD and a small group of lenders only such as The Loan Tree are qualified and approved to offer this loan
- Once your loan is approved, a date will be set for closing. At closing, the seller (if this is a purchase) will be paid and the money for your rehab costs will be placed into an escrow account to fund your rehab project
- After closing, your GC is required to start the rehab project within 30 days and must complete the project within 6 months. At certain milestones, the your GC can request draw payments once specified portions of the rehab project have been completed. The lender will order an inspection to verify the work has been completed satisfactorily. If the work passes inspection, the GC will be paid from monies in the escrow account
The FHA 203K government insured mortgage program allows for the purchase or refinance of a 1-4 family owner occupied home, a condo or a town home 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.