| Under Section 203(k) of the National Housing Act, the | | | | goes to pay for the purchase or refinancing of the |
| Federal Housing Administration (FHA) offers mortgage | | | | home. The remaining money is placed in an escrow |
| insurance on loans issued by approved FHA lenders to | | | | account to pay for the work on the home. Funds from |
| help borrowers purchase and rehabilitate a home. The | | | | the escrow account are paid out as rehabilitation work |
| home should be one that the borrower plans to use as | | | | is completed. |
| their primary residence. This same insurance program | | | | Work Covered By Section 203(k) |
| also covers cash-out refinance mortgage loans whose | | | | Many types of improvements can be covered under |
| proceeds will be used by the borrower to rehabilitate | | | | this program. They include but are not limited to: |
| their current home. | | | | - modernization of the home |
| Why the "Fuss" About FHA 203(k) Loans? | | | | - correcting health or safety hazards |
| Trying to buy a "fixer-upper" home and rehabilitate it | | | | - repairing or replacing plumbing |
| can be a very complicated process for borrowers. It | | | | - repairing or replacing electrical |
| typically requires taking out multiple short-term loans | | | | - repairing or replacing roofing |
| with high interest rates. These loans often require a | | | | - repairing or replacing floors and floor treatments |
| balloon payment when they become due. | | | | - landscaping and other work to improve the |
| The FHA created Section 203(k)-insured loans to | | | | appearance of the property |
| address the needs of such borrowers wanting to | | | | - energy efficiency improvements |
| rehabilitate new or existing homes. This program | | | | Other types of home improvements are covered. You |
| makes the process of buying and fixing up a new | | | | will want to consult your lender to find out if your |
| home much simpler by providing the borrower with | | | | particular rehabilitation needs can be covered under |
| one long-term mortgage loan that covers everything. | | | | the program. |
| How Do Section 203(k) Loans Work? | | | | Who Can Apply? |
| There are several basic requirements for a home loan | | | | Anyone can apply for an FHA 203(k)-insured |
| to be covered under Section 203(k). The home must | | | | mortgage as long as they can afford the monthly |
| be at least one year old, and the planned rehabilitation | | | | house payment based on their debt-to-income (DTI) |
| must cost a minimum of $5000. The property value of | | | | ratio. To apply simply contact and FHA-approved |
| the home must fall within the FHA loan limits for that | | | | lender. Many services are available online where you |
| area of the country. FHA maximum loan limits differ | | | | can fill out a single form and get referred to multiple |
| for each county, borough, or county in the state where | | | | lenders allowing you to compare multiple rates and |
| the property is located.. | | | | loan offers. |
| When a 203(k) loan is closed, some of the money | | | | |