A traditional 203K loan specifically allows for the simultaneous purchase and repairs of a home. A home purchased with a conventional mortgage must be able to pass an appraisal, an evaluation of the home's worth, with a value that meets or exceeds the mortgage amount, and a damaged or outdated house commonly does not pass appraisal.
The Streamlined 203k Limited Repair loan lets a buyer finance up to $35,000 in extra money to improve a home as of 2011, in addition to a conventional mortgage. The streamlined loan is for homes that need improvement, but not as much as a home under the traditional program would need. Both types have the same basic U.S. Department of Housing and Urban Development rules and eligibility criteria.
The qualifications for a buyer who wants a 203k loan are based on the participating lender's criteria, but the home being purchased is subject to universal standards set by HUD. The house must have no more than four units and be at least one year old. A demolished home or home that has to be demolished as part of the renovations qualifies as long as part of the foundation remains in place. A condominium unit can be rehabilitated using a 203K loan as long the borrower intends to use the unit as a primary residence.
A home that is considered both residential and commercial -- referred to as "mixed use" -- is eligible for the 203k loan program if the commercial use does not exceed HUD's percentages, as determined by the HUD appraiser. A one-floor structure cannot have more than 25 percent of the floor area used for commercial purposes as of 2011.
Both 203k loan types cannot exceed the lesser of two figures: 110 percent of the home's estimated market value after repairs or the property's current value and the cost of the work. Loans for condominium units cannot exceed the market value of the unit after repairs as of 2011.
A home under the traditional 203k program must need at least $5,000 in repairs as of 2011. The streamlined program does not apply a minimum limit.
Fred Yancy, Broker