FHA 203 Rehab Loans

A Means to Finance Your Home Purchase AND Any Needed Renovation

Although the FHA Rehab home loan program (also known as the FHA 203K program) has been around quite a few years, it has not been widely used as a financing vehicle for residential real estate transactions. Today, however, with the number of distressed properties on the market, this unique loan program presents opportunities to buyers looking to take advantage of “fixer-upper” scenarios offering the potential for building immediate “sweat equity.”

Simply put, the FHA 203K program allows a buyer finance both the cost of acquiring a property and the cost of performing repairs and upgrades. There are conditions, of course, but nothing too onerous. The overriding condition is that the final loan amount, which is the purchase price, plus the cost of the improvements, must be justified by the anticipated value increase using normal FHA underwriting criteria regarding loan-to-value, income/debt ratios and maximum loan limits. From the seller’s perspective, there is no difference from a normal FHA sale in which the proceeds on the sale price are disbursed and title transfers to the purchaser at closing. There are no special costs to the seller and no holdbacks. The improvements are performed after the closing.

Some other conditions are that the program is only for owner-occupied properties and that the home must have been completed for at least one year and previously occupied. The list of eligible improvements is comprehensive. For a more thorough analysis of the program, consult your lender or go to the government site here.