Attn: Mortgage Lenders. Is there such a thing as a 203k type loan for Commercial properties?

Asked by Emily Knell, Huntington Beach, CA Mon Sep 12, 2011

I need to get a buyer pre-approved for financing for approx. $2.5M but the commercial property needs some work, can a buyer finance an amount into the loan for the work that needs to be done? I don't think work needs to be done in order to close, but the property needs to be spruced up after closing. The property CAN still operate & produce an income without any work being done at all.

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Carl Snyder, Mortgage Broker Or Lender, San Diego, CA
Mon Sep 12, 2011
A 203k can be used on a "mixed use residential property” provided it meets the following requirements:

The floor space used for commercial purposes does not exceed...

25% for a one story building

33% for a three story building

49% for a two-story building

The commercial use must not affect the health and safety of the residential occupants.
The rehabilitation funds will only be used for the residential functions of the dwelling and areas used to access the residential part of the property.
0 votes
John Arendsen, Agent, Leucadia, CA
Tue Sep 13, 2011
Have you considered an SBA loan?
1 vote
Carl Snyder, Mortgage Broker Or Lender, San Diego, CA
Mon Sep 12, 2011
You have not stated if the property is for residence or mixed use with residence. If it is, then the following applies.
Multifamily Properties:
Special construction and substantial rehabilitation loan program up to 90% of total costs are available via FHA (HUD).
HUD FHA apartment loans are a great financing option for borrowers looking for maximum leverage and longer fixed rates and terms. FHA insured mortgages are non-recourse with no market - economic or population - restrictions.
The HUD FHA 223(f) is a market rate apartment program. There are no tenant income restrictions or requirements, unless otherwise required by a project based HAP contract or individual tenant based voucher program.

Eligible Properties:

Must contain five or more residential units and consist of complete living facilities including provisions for eating, cooking and sanitation.
Properties with fewer than five residential units will be considered if the aggregate of units exceeds five and all properties are contiguous.
Commercial area is permissible, but cannot exceed 20% of the net rental area, or 25% of the gross revenues.

Both market rate and affordability properties are eligible.
Student housing properties that offer rents per room, not per unit, are ineligibe.
30 day minimum lease term required.
Three years must have elapsed since construction or substantial rehabilitation. For properties with fewer than three years stabilization, a waiver may be granted to refinance debt only, no owner equity take out allowed.
The loan may include repair costs not to exceed 15% of its value after repairs or no more than $6,500 per unit (except in high cost areas) - whichever is greatest. Repairs may not include replacing more than one major building system such as plumbing or electric.
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