FHA 203(k) Home Loans
Combining home purchase and renovation costs into one mortgage, simplifying finances and saving money.
An FHA 203(k) Loan is designed for individuals who want to buy or refinance a home that needs repairs or renovations. This loan bundles the purchase and repair costs into one mortgage, potentially saving you money and making it easier to manage your finances.
What Are FHA 203(k) Loans For?
These loans are intended to finance homes that require repairs or renovations. They can be used for both purchases and refinancing, covering the cost of the property and necessary repairs.
Benefits of FHA 203(k) Loans:
- Lower Costs: Combining purchase and repair financing may save you money on loan fees.
- Purchase Distressed Properties: You can buy a home in need of repair, potentially below market value, and renovate it to your liking.
- Increased Property Value: Renovations can increase the home's value and improve its resale potential.
However, FHA 203(k) loans involve stricter requirements and more complex processes compared to standard FHA loans.
Types of FHA 203(k) Loans
- Limited 203(k):
- Purpose: For less extensive repairs.
- Loan Limit: Up to $35,000.
- Eligible Repairs: Roof, HVAC, plumbing, electrical systems, flooring, and painting.
- Ineligible Repairs: New construction and major structural repairs.
- Standard 203(k):
- Purpose: For more extensive repairs, starting at $5,000.
- Loan Limit: No maximum.
- Eligible Repairs: All repairs from the Limited 203(k) program, as well as structural repairs, kitchen and bathroom updates, safety hazard remediation, and accessibility improvements.
- Additional Requirement: A HUD representative will inspect the property and oversee the repairs.
Borrower Eligibility
Eligible Borrowers:
- U.S. Citizens or permanent resident aliens
Ineligible Borrowers:
- Foreign nationals, Corporations and LLCs
Property Eligibility
Eligible Properties:
- 1-to-4 unit attached/detached primary residences and planned unit developments
- FHA-approved condos
- Modular homes (must have a permanent foundation)
- Mixed-use developments (additional conditions apply)
Ineligible Properties:
- Co-ops
- New construction
- Manufactured houses
- Properties with non-conforming construction that can’t be remedied
Other Requirements and Repair Eligibility for FHA 203(k) Loans
To be eligible for an FHA 203(k) loan, the following conditions must be met:
- Owner-Occupied Property:
The property must be owner-occupied, meaning it cannot be purchased as a second home or for investment purposes. - Loan Purpose:
The FHA 203(k) loan must be used for either the purchase or refinance of the property. - Transaction Restrictions:
The transaction cannot involve buying from a relative or a business associate. This helps ensure the transaction is arms-length and avoids conflicts of interest. - Appraisal and Construction Requirements:
Additional requirements may include a special appraisal for determining the home’s value after repairs are completed. There may also be specific construction requirements to ensure the renovations meet HUD standards.
Eligible Major Structural Repairs:
- Structural alterations
- New bathrooms
- Finishing of attics/basements
- Repair of termite damage
- Repair of detached garages
- Construction of new attached garage
- Chimneys/skylights
- Update of kitchens/bathrooms
- Remediation of safety hazards
- HVAC repair or replacement
- Electrical and plumbing improvements
- Grading and drainage improvement
- Major landscaping improvement
- Swimming pool repair (minimum cost $1,500)
Eligible Non-Structural Repairs:
- Roofs
- Gutters and downspouts
- Decks, patios, and porches
- Repair of existing HVAC
- Plumbing/electrical
- Flooring and carpeting
- Interior and exterior painting
- Purchase and installation of appliances
- Accessibility improvements for the handicapped
- Non-structural basement finishing and waterproofing
- Weatherization improvements
- Replacement of windows/doors
- Residing
- Septic/wells