A 203 (k) Loan is a type of mortgage that can be used to rehabilitate the home you are living in (done as refinancing), or a home you are looking to purchase. You can also rehab a multi-family single-dwelling with a 203 (k) Loan.
203 (k) Loans are offered via the Housing and Urban Development Office (HUD) of the Federal Housing Administration (FHA). The 203 (k) Loan allows a borrower to roll the costs of the rehabilitation into the mortgage as opposed to finding separate financing for your rehab job.
What’s good about a 203 (k) Loan
- You can borrow funds (as part of a mortgage) to replace your roof, get a new furnace, weatherize, upgrade your kitchen or bathroom, etc.
- You can use the money to significantly improve energy efficiency, such as installing solar panels for electricity or a hot water system or new windows.
- You don’t need to have a lot of equity in your home.
- You can improve the value of the home you want to buy right off the bat.
- You can correct Title 5 (septic) issues before moving in.
- You can purchase all new appliances for apartments if you have or are purchasing a multi-family house.
- You can add an additional floor or room to the house.
Standard 203 (k) Loan
One of the most difficult aspects of the standard loan is the requirement to have an appointed plan reviewer in order to have FHA approval. The plan reviewer meets with the customer and determines the scope of work. “The plan reviewer has a lot of power. For example, they may require you to add another $25,000 to the project in order to meet HUD guidelines.
The project reviewer has a lot of control over who is hired for the project (s) and ultimately make the decisions on who to hire based on estimates. The project reviewer does a feasibility study that can take “one day or two to three weeks,” .
Streamlined 203 (k) Loans
One of the major differences between a standard and streamlined loan is the maximum amount that can be borrowed is $35,000. “This includes permits, inspection fees, and a ten percent contingency reserve,”. “So, what you really have is $30,000 to $31,000 for renovation.” In the streamlined loan, only specific types of rehab can be done to a property. “You can’t do substantial structural repair,” . The plan reviewer in a streamlined loan will allow the customer to seek out estimates themselves and make their own choices regarding which contractor to use.
There are still a wide range of projects that can be done with the streamlined loan, including most energy efficiency improvements.
There are some state-to-state differences that apply to the loans, but most are not usually significant according to Barron.
For more information on HUD guidelines relating to 203 (k) Loans, go to:
http://www.hud.gov/offices/hsg/sfh/203k/203kabou.cfm
To find lenders in your area that can do 203K’s try this web site:
www.mortgageseeker.net
