The FHA 203K Rehab Loan.
The Federal Housing Administration’s 203(k) program is a purchase or refinance rehabilitation loan. This loan program allows a borrower with limited funds to purchase, or refinance, and fix up a one-to four-unit property. Although it must be owner-occupied, a portion of the property can be for commercial use. As long as part of the existing foundation remains in place, properties which are demolished (or scheduled to be as part of the rehabilitation) are eligible. Improvements made under this program may be significant or minor, but a minimum of $5,000 in improvements must be made, and they must fall within certain categories. Additionally, there is no upfront Mortgage Insurance Premium (MIP) charged on 203(k) loans.
If needed, there are some repairs which are mandatory: thermal protection (insulation, etc.), smoke detectors, wood-boring pest and moisture damage, septic, well or water service, and elimination of health and safety hazards. Other eligible repairs or improvements to meet the first $5,000 minimum requirement include modernization and functional changes; reconditioning or replacement of plumbing, heating, air conditioning and electrical systems; aesthetic upgrades and the elimination of obsolescence; roofing, guttering, and downspouts; damaged flooring; and energy conservation upgrades. Beyond these, virtually any other improvements can be made, such as purchasing new appliances or repairing a pool.
Many additional costs can be financed into the 203(k) loan, including permits, inspection costs, work write-ups, and supplemental fees. Other expenses that can be rolled into the loan include the escrow for contingency costs and up to six months worth of the proposed mortgage payment. For structures over thirty-years old, FHA requires between ten- and twenty percent of the cost of scheduled repairs to be financed into the loan for escrows. If the dwelling is unlivable while the work is being done, up to six monthly payments can be financed. The maximum amount of time allowed for the completion of repairs is six months (hence the allowable six months of financed payments).
For further info or to apply for the 203K
First American Mortgage
418-A Mill Street
Bristol, PA 19007
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