The FHA 203k loan program helps FHA home buyers and homeowners finance desired and required repairs or renovations into their FHA home loan.
What is an FHA 203k Loan?
Overall, FHA 203k loans are useful for many reasons. First of all, FHA 203k loans help borrowers finance reno, rehab and/or repair costs. Also, the purchase or refinance transaction closes BEFORE reno, rehab and/or repair work is complete. Finally, FHA 203k loans use future appraised value (or “after improved value”).
In fact, Future value plays a major role in an FHA 203k loan. Rather than use pre-improved value lenders base the home’s value on what it will be worth after all work is complete. This creates room to finance the work within the FHA loan.
FHA 203k – How Does it Work?
Borrower’s finance repair and reno costs using an FHA 203k loan. Once the FHA 203k loan funds, the borrower has just 1 home loan. All funds (those for the home purchase + those for the reno work) are combined into the same one FHA loan.
All work financed by an FHA 203k loan starts after the loan funds / closes. As contractors complete work, the lender pays them with funds from the FHA 203k loan.
Also, the FHA borrower owns the home AND makes monthly mortgage payments once the loan funds / closes. In other words, mortgage payments are due even when work is still being completed on the home.
Repair Work Allowed
FHA limits the type of repair and reno work allowed on FHA 203k loans. For example:
FHA 203k Eligible Repairs
- Roof: repair or replace
- Gutters: install/repair/replace
- Insulation: ceilings/walls/asbestos removal
- Siding/windows/doors
- Paint: interior/exterior/lead paint abatement
- Kitchen: all appliances/cabinets/total rehab
- Electrical: repair/replace/recondition all
- Plumbing: repair/replace/recondition all
- Repair/replace HVAC or other systems
- Flooring/sub-flooring/tile/carpet/wood
- Termite treatment/damage repair
- Install well/septic
- Landscaping/fencing
- Mold remediation or mold removal
- Handicap accessibility
- Foundation repairs
- Upgrade/repairs for health and safety
- Swimming pool repairs up to $1,500
- 12 months to complete and no max dollar limit on 203k standard
- 9 months to complete and $75k max dollar limit (cosmetic only) on 203k limited
Check out eligible AND ineligible 203k repairs.
FHA 203k Benefits
Overall, an FHA 203k loan yields many benefits to both buyers and homeowners. While using future value creates the basis for most FHA 203k success stories, the loan helps borrowers in other ways. In fact, many find the following to be most beneficial.
- Renovation work takes place after loan closes
- Keep borrowers from using personal cash resources to finance repairs/reno projects
- Allows purchases with required repairs to close prior to repair fixes
- Finance rehab money at a competitive rate
Also, FHA 203k loans allow up to 12 months for the full 203k and 9 months for the 203k limited program to complete repairs and renovations. This clock starts the moment the FHA loan funds. However, time-frame exceptions granted on a case by case basis.
Other Reno Loans
In addition to an FHA 203k loan we offer several other Reno / escrow hold-back loan options. For example: