View Full Version : FHA-203K--What is it anyway?

Samantha Ross
10-20-2014, 01:35 PM
It's May 2010, and Tony and Monica have decided to purchase a home. It's their first house, so they selected a home in a modest neighborhood, right on the edge of the city. But, the home shows signs of age and poor maintenance on the part of the current owner. This seller doesn't have the money to make the needed repairs in order to have the home qualify for the FHA insured mortgage Tony and Monica are looking to get. Also, the couple would like to see some of the areas in the home updated and modernized. What can they do? How can they "have their cake and eat it too?" or in this case--buy a rundown home and get the money to fix it up at the same time?

The Answer is: THE FHA 203k Rehabilitation Mortgage

A 203k Rehab mortgage provides a buyer with the ability to buy a home that is in need of significant repairs with an FHA insured loan and get the repairs completed after closing. In the past, when a homebuyer wanted to purchase a house in need of repair or modernization, the homebuyer usually had to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work was completed to pay off the interim loans. Often the interim financing (the acquisition and construction loans) involved high interest rates and short amortization periods. Those days are gone as virtually no lenders offer conventional renovation mortgage financing as a result of the mortgage meltdown.

The Section 203(k) program was designed to address this situation. The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property. To provide funds for the rehabilitation, the mortgage amount is based on the projected value of the property with the work completed, less the acquisition price of the dwelling.

The process may involve an inspection performed by a certified FHA/203k consultant. HUD does not require a consultant be used on all loans, but STRONGLY recommends it. Most lenders will insist that an independent consultant be involved to ensure the work write-up has been created based on HUD standards for those loans of $35,000 or more. This consultant is the buyer's representative just as in the normal home inspection process, but additionally the consultant also represents the federal government and the lender.

Brian Hannigan
10-22-2014, 11:48 AM
Hi Samantha,

Thank you for the great information. I look forward seeing more as I can honestly say I do not know a lot about FHA consulting/inspections.