Can I use an FHA 203k loan for this scenario?

Asked by Vargil, Sun Apr 14, 2013

I am looking at purchasing a lot that a builder began on about 2.5 years ago. As far as they got was building the foundation for the basement. I would love to build a home on top of the pre-existing basement and was curious if I could use a 203k loan to do so.

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Sun Apr 14, 2013
No, the FHA 203K loan could not be used in that situation. For an FHA 203K, there is no cap on the dolalr amount of repairs that can be made. There is a limitation on the property though. In order to be able to do an FHA 203K Renovation mortgage, HUD requires that a Certificate of Occupancy (CO) must have been issued at least 12 months prior. Homes not meeting this CO requirement would not be eligible for FHA financing.

If you find a lot that contains the foundation of a previously occupied home, then yes, an FHA 203K mortgage could be used to build a new house so long as a major portion of that existing foundation is used.

A true construction mortgage would be about your only option. We do offer another Renvoation loan program, but that one would require the home to at least be at the sheetrock stage.

Rodney Mason, NMLS #151088
Sr Loan Officer
Prospect Mortgage
825 Juniper St NE, Atlanta, GA 30308
Office: (404) 591-2453
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Licensed in Alabama & Georgia with over a decade of mortgage lending experience.

Prospect Mortgage offers a full selection of mortgage programs including:
Conventional | FHA | FHA 580-639 FICO | FHA 203K Renovation (Streamline & Consultant) | HomePath® | HomePath® Renovation | HomeStyle® Renovation | VA | USDA | GA Dream | Jumbo Financing.
1 vote
Dana Lindberg, Both Buyer And Seller, Phoenix, AZ
Sat Oct 12, 2013
Most likely, no. 203k loan aka renovation loan is designed for home repairs and not finishing new construction. It also requires a certificate of occupancy prior to approval.

Dana Lindberg
CFS Mortgage -
0 votes
Thomas Young, Home Buyer, Phoenix, AZ
Fri May 24, 2013
From my experience with 203k loans, the best advice is to use a lender that offers assistance via third party with 203k processing.
This shortens the closing time by weeks. Try for more information.
0 votes
Chris Irvin, , Atlanta, GA
Mon Apr 15, 2013

Rodney's answer is spot on. Construction loans are often a better alternative to 203k when you are dealing with a major project anyway. My company offers a great "1 time close" construction to perm product that would let you complete this project.


Chris Irvin
Mortgage Banker
Brand Mortgage
NMLS # 75615/465546
0 votes
I have a question regarding construction loans anyway, so I will shoot you an email to ask. Thanks!
Flag Mon Apr 15, 2013
Vargil, Home Buyer,
Sun Apr 14, 2013
Based on the HUD website, the part I am trying to understand is what is the difference between what I would be looking to do, and this statement: "Homes that have been demolished, or will be razed as part of the rehabilitation work, are eligible provided some of the existing foundation system remains in place."

0 votes
Betty D. Scy…, Agent, GA,
Sun Apr 14, 2013
You will have to do some research.. See if you can find out the home the builder planed to build. You will need to fit your plans to the existing foundation. I would go to the County of record and check with the building department. You should know if the footers were inspected prior to the walls. Is the walls poured concrete or masonry block?. You might want to check with a lender to start to see what their rules and requirements are.. They will want to be sure that there are no mechanic' liens for the work already done..There could have been several thousand spent already; The grading, lot clearing, hauling, concrete supplier, Termite treatment of soil prior to footings being poured etc. Is the slab (floor of basement area) already poured? You will need to do a lot of work but it could be profitable to you.. Good luck..Betty
0 votes
Veronika Bar…, Agent, Roswell, GA
Sun Apr 14, 2013
As David mentioned, the house needs to be completed. Your only option is using a construction loan.
0 votes
David Bottom…, Agent, Atlanta, GA
Sun Apr 14, 2013
That would not be eligible for a 203k loan. Under current guidelines, "To be eligible, the property must be a one- to four-family dwelling that has been completed for at least one year." Properties not completed are not eligible. Here's a link with all the info you need regarding a 203k.…
0 votes
Isabel Elses…, Agent, Alpharetta, GA
Sun Apr 14, 2013
With the 203k the maximum allowing renovation amount is $35,000.
660 score
Primary residence.
This is perfect to finish that basement.

For more information contact a lender that is very familiar with this product.

Isabel Elsesser, Realtor
First United Realty
Save Time & Money!

Direct 770-307-8751
Fax 888-799-3184
Full Time from 1993-2013
0 votes
Only the FHA Streamline 203K has a $35,000 limit for renovations. On the FHA Consultant 203K, there is no dollar limit on the amount of repairs. The minimum credi score required is typically 640+.
Flag Sun Apr 14, 2013
Bruce Ailion, Agent, Marietta, GA
Sun Apr 14, 2013
No, you would have to use a construction loan, construction permanent, or hard money loan.

Bruce Ailion,
RE/MAX Greater Atlanta
An Atlanta Real Estate Expert Serving Clients Since 1979
2050 Roswell Road
Marietta GA 30062
404-978-2281 Direct
The LinkedIn REALTOR
0 votes
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