We closed the loan and started rehab on our house in 22 days! Thank you so much for your assistance - we couldn't have done it without you.

- Debbie F, Homeowner

FHA 203k Loans Explained



FHA 203k Loans Explained

The massive influx of recent foreclosures has created a market with a number of vacant homes in need of repair. Unfortunately, lenders have been increasingly leery of writing mortgages for such properties in need of investment. The Federal Housing Administration (FHA) developed the 203k loan program in an effort to encourage lenders to fund these traditionally risky housing assets. The goal of the FHA 203k loan program is to increase home ownership, reduce foreclosures on the market, and promote neighborhood revitalization.

FHA 203k loans are specifically designated for homes that have existing damage or are in need of rehabilitation. The loans are also very flexible and cover a wide variety of repairs, such as roofing, additions, kitchen and bathroom remodeling, new flooring, air conditioning, and much more.

Does Your House Qualify?

FHA 203k loans consist of two types, standard and streamlined. FHA 203k standard loans are designed for homes that need significant structural repairs, and FHA 203k streamline loans are for homes that need repairs of a more cosmetic nature. In order to qualify for an FHA 203k standard or streamline loan, homeowners must live in the home they are repairing. This requirement makes the 203k loan unavailable for investors seeking cash flow for their investments, and only available for current or future residents.

The following type of residences fall under the FHA 203k loan requirements:

  • Any home that needs to be moved in order to rest on a new foundation
  • Houses that need to be torn down and re-built from the ground up
  • A residential/commercial mixed use property, as long as the home portion is only being renovated
  • Any existing construction that is at least one year old
  • Condo units that have previously been approved for FHA loans
  • Multiple unit dwellings (up to 4 units)

What Repairs Qualify for the 203k Loan?

While there are numerous improvements that are covered by the FHA 203k standard and streamline loans, the FHA has specific guidelines that clarify what kind of repairs meet the 203k loan requirements.

The following is a list of allowable repairs under the FHA 203k loan program:

  • Grading the site
  • Adding disability access
  • Finishing a basement or attic
  • Any air conditioning, heating, and ventilation
  • New exterior siding
  • Plumbing repairs or new plumbing
  • New additions (including second-story additions)
  • New roofing or flooring
  • Kitchen and bathroom remodeling
  • New appliances
  • Exterior patios and decks

All FHA 203k loans must include labor costs and the eligible repairs have to be completed within six months of closing.

FHA 203k Loan Requirements

All FHA 203k loan amounts must include the price of the property, the estimated price of repair materials, and the labor cost (even if the homeowner does all of the repairs). Like most home loans, 203k loans also require homeowners to provide a down payment. However, the required down payment percentage is usually far less than other FHA or traditional loans.

Applying for an FHA 203k standard or FHA 203k streamline loan is a tedious process. In order to apply, applicants must provide the typical proof of income and proof of asset reports. In addition, prospective homeowners must provide a recent home appraisal from a professional appraiser, which shows the current value of the home and the after-repaired value. Applicants must also include a very detailed proposal of every repair that will be done to the home, including a cost breakdown of each separate repair.

FHA 203k loans are specifically designed to help first-time home buyers realize the home of their dreams. Though the process may seem lengthy and tedious, the benefits far outweigh the costs. To help them with the process, many loan applicants hire specialized consultants to help prepare al of the necessary paperwork. Rather than having to pay out of pocket, the consulting fees can be included into the 203k loan amount, making the decision to apply for the loan and receiving instant equity a serious no-brainer.