ex: I buy a home for 200k but it needs 30k worth of work. I use a 203k loan for all of the rehab so the bank loans me 230k instead of just 200k.
To purchase a dwelling and the land on which the dwelling is located and rehabilitate it.
To purchase a dwelling on another site, move it onto a new foundation on the mortgaged property and rehabilitate it.
To refinance existing liens secured against the subject property and rehabilitate such a dwelling.
To purchase a dwelling and the land on which the dwelling is located and rehabilitate it, and to refinance existing indebtedness and rehabilitate such a dwelling, the mortgage must be a first lien on the property and the loan proceeds (other than rehabilitation funds) must be available before the rehabilitation begins.
To purchase a dwelling on another site, move it onto a new foundation and rehabilitate it, the mortgage must be a first lien on the property; however, loan proceeds for the moving of the house cannot be made available until the unit is attached to the new foundation.
Luxury items and improvements are not eligible as a cost rehabilitation. However, the homeowner can use the 203(k) program to finance such items as painting, room additions, decks and other items even if the home does not need any other improvements. All health, safety and energy conservation items must be addressed prior to completing general home improvements.
All rehabilitation construction and/or additions financed with Section 203(k) mortgage proceeds must comply with the following:
A. Cost Effective Energy Conservation Standards
(1) Addition to existing structure. New construction must conform with local codes and HUD Minimum Property Standards in 24 CFR 200.926d.
(2) Rehabilitation of Existing Structure. To improve the thermal efficiency of the dwelling, the following are required:
a) Weatherstrip all doors and windows to reduce infiltration of air when existing weatherstripping is inadequate or nonexistent.
b) Caulk or seal all openings, cracks or joints in the building envelope to reduce air infiltration.
c) Insulate all openings in exterior walls where the cavity has been exposed as a result of the rehabilitation. Insulate ceiling areas where necessary
d) Adequately ventilate attic and crawl space areas.
Only the Standard/Rehab version requires a minimum of $5K in rehab. The Streamline version does not have a minimum rehab requirement.
Only the Streamline version is limited to $35K max rehab. The Standard/Rehab version is limited by the FHA max mortgage limit for that county, the improved appraised value (can go as high as 110% of the improved appraised value), borrower's qualifications and what the borrower actually wants to spend.
B of A is NOT the only lender who can do the Standard/Rehab version.
Use of a contractor is NOT required according to HUD guidelines. Self-help arrangements where the borrower is doing some or all the work is permited, as long as the borrower is skilled and qualified to do such work, subject to lender approval. However, lender overlays may require the use of a contractor.
A "cushion," actually called the contingency reserve is only required according to HUD guidelines on the Standard /Rehab version. This contingency reserve can be as low as 10% of the cost of rehab up to 20% of the cost of the rehab and is used for emergency funds, unexpected expenses upon lender approval.
Excess rehab funds by default are used a a principal balance reduction but can be used for additional improvements, subject to lender approval.
The 203k is NOT exclusively used for homes that are not livable. It is also used for properties that meet current living standards but the borrower wants to improve it (such as adding an addtion).
Asset Managers and REO listin agents are more open to acepting offers where 203k financing is being used. This is mainly occuring onthe east coast but we are seeing this in the midwest and in some parts of the west coast. If not in your area yet, it's coming.
As with any product, seek out qualified professionals for assistance. Certified 203k Contractors are located on the 203k Contractor Directory at http://203kContracors.com .
Contractor Directory for the FHA 203(k) Loan
An FHA 203(k) loan is basically the same as a regular FHA [called a 203(b)], but with a twist. An FHA 203(k) loan permits homebuyers to finance repair/improvement money into their mortgage to repair, improve or upgrade their home. With this loan option, homebuyers can quickly and easily tap into cash to pay for property repairs or improvements.
The purchase of a house that needs repair is often a catch-22 situation, because the bank wonâ€™t lend the money to buy the house until the repairs are complete, and the repairs canâ€™t be done until the house has been purchased. HUDâ€™s FHA 203(k) loan program can help you with this quagmire and allow you to purchase or refinance a property plus include in the loan, the cost of making the repairs and improvements. Plus the mortgage loan interest on the FHA 203(k) loan qualifies for the mortgage interest tax deductions like all other mortgage loans. So, the interest that the borrower pays on this â€œconstructionâ€ can be all tax deductible!
Contractor Directory for the FHA 203(k) Loan
Hope this helps.
The Section 203(k) program is the Federal Housing Authority's (FHA) primary program for the rehabilitation and repair of single family properties. As such, it is an important tool for community and neighborhood revitalization and for expanding homeownership opportunities. Since these are the primary goals of HUD, the Department believes that Section 203(k) is an important program and we intend to continue to strongly support the program and the lenders that participate in it.
A 203K loan is a type of FHA loan that allows you to finance certain repairs on the property while still allowing the Buyer to put down 3.5%. The interest rate is generally a bit higher than a standard FHA loan and can vary from lender to lender. In order to get the full spectrum of this type of loan and any repair amount caps you should seek input from a mortgage broker who deals with FHA loans. Hope this helps.
New England Properties of Barrington
A 203K program is a financing vehicile that allows you to buy a home that needs work, ei: heating, roof, etc. You would be able to agree on purchase price with home owner then be able to borrow the monies needed to repair home. Carol Croce is a loan officer with Wells Fargo Home Mortgage and she focus on 203K financing. She can be reached directly at 401-787-6830.
The minimum amount of repairs required to utilize an FHA 203K loan is $5,000 and the maximum is $35,000. However, this is not considered a second mortgage or home equity or improvement loan. This portion of the loan is added on to the primary note.