203K Streamline and Full
This loan can help you buy and repair a fixer-upper.
FHA 203k loans are offered by the Federal Housing Administration, a government agency. The federal government designed these loans to encourage lenders to fund seemingly risky home purchases. Goals of neighborhood revitalization and greater homeownership opportunities also drove the creation of this loan.
FHA 203k loans are designated for houses that are damaged or sorely in need of rehabilitation. The loan covers not only the cost of the property but also the cost of necessary home repairs. The down payment requirement is low, and eligibility criteria are loose. Homeowners whose homes need improvement can also refinance with these loans. A vast range of repairs, including room additions, bathroom remodeling, roofing, flooring, and air conditioning systems can be funded with these loans.
Which houses qualify?
There are two types of FHA 203k loans, regular and streamlined.
Regular 203k loans are for homes that need structural repairs.
Streamlined loans are for those that need non-structural repairs.
In order to qualify, homeowners must plan to live in the home they are repairing. The following types of residences qualify:
- Tear-downs: As long as part of the foundation will remain, houses that need to be destroyed and rebuilt are eligible.
- Existing construction that is at least a year old.
- Single-family, two-family, three-family or four-family dwellings.
- Condos: if they have been approved for FHA loans.
- Mixed-use properties: If you are repairing only the home portion, a mixed residential/commercial property can qualify.
- Homes needing to be moved to rest on a new foundation.
Which repairs qualify?
The FHA has specific guidelines as to which types of repairs qualify for 203k loans. The lender will also stipulate which repairs you can make.
Allowable repairs include:
- Disability access
- Heating, ventilation and air conditioning
- Roofing and flooring
- Energy conservation
- Kitchen remodeling
- New appliances
- Room additions
- Decks and patios
- Bathroom remodeling
- Room additions or second-story additions
- New siding
- Finishing an attic or basement
- Site grading
Labor costs must be included in the loan. A homeowner cannot provide self-help or perform the repairs. The repairs must be completed within six months by an approved licensed and bonded contractor.
How much does it cost?
The FHA 203k loan amount has to include the price of the home plus the expected price of repairs. The homebuyer has to provide a percentage of the loan as a down payment. That percentage is usually far below that required by conventional loans and other FHA loans.
In order to apply, the loan applicant has to provide proof of income, proof of assets and credit reports. In addition, the applicant has to provide a home appraisal, including how much the home will be worth after the improvements are made. The applicant also has to present a detailed proposal of the work required on the home, including a cost estimate of each repair.
Some loan seekers hire a 203k consultant to prepare the extra paperwork. The consultant's fees can be included in the loan amount.
Special stipulations to consider
An FHA 203k loan is especially beneficial to those who cannot afford a finished home and are willing to take on a fixer-upper. If you choose to apply for a 203k loan, keep the following in mind: Many lenders do not offer 203k loans. You have to find a lender who is willing to work with you. Expect to spend a lot of time on document preparation and bureaucracy. FHA 203k closing can take from 60 to 90 days. Interest rates tend to be high, due to the risk involved to the lender. The home improvements cannot guarantee to increase the value of the home.
Be careful not to over-invest in the home. Do not pour more money into the house than you could ever recoup in a resale.
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