FHA 203(k) Home Rehabilitation Loan

I want to take a couple minutes of your time to tell you about a loan program that may be misunderstood by many people but it's really not that complicated - FHA 203(k). I know, I know, in the past this program didn't have the best reputation, but, it does do stuff that no other mortgage loan program will do in today's world!

What, you ask, are these miraculous qualities? Well, a person can buy a home that needs updates or repairs and be able to finance the cost of those things right into the mortgage at the time they buy the house! Plus, it isn't nearly as difficult as people may think.  It's like a home purchase mortgage and construction loan all in one.

The FHA 203(k) streamlined program will allow a home buyer to finance approximately $30,000 of repairs or improvements right into the initial mortgage. They are actually borrowing more than they are paying for the house. The extra money can be used for a number of different things including roof, plumbing/electrical, flooring, painting, windows, basement finishing, appliances, and bathroom or kitchen remodeling, but cannot include any structural changes or structural repairs. This means no additions or moving of walls, etc. Also, the home owner is not allowed to do the work themselves. All work must be performed by licensed contractors and there is a 180 day time limit in which the work must be completed.

As with all FHA loans, the 203(k) loan is subject to the FHA loan limit and in Southeast Michigan that limit is $271,050. The borrower is only required to make the minimum down payment of 3.5% (seller concession for closing costs is OK too) . Basically, as long as the purchase price plus cost of repairs do not exceed $280,000 then buyer down payment will be only $9,800!

The process of purchasing a home with a 203(k) loan is a bit more complex than a standard mortgage. After the offer is accepted by the property seller then the home buyer will need to determine the extent of work they would like to accomplish and get bids from contractors and choose those they would like to work with. Once all of the bids are in and acceptable, the appraisal can be ordered. The house should appraise for an amount equal to the sales price plus the cost of the improvements. There is some margin for error in this as FHA uses up to 110% of the "after-improved appraised value" as the basis for the loan.

So, if you are looking at homes and would like to be able to "make it your own" by updating things the way you want, then the 203(k) loan may be the right option. Contact me with questions. As always, thanks for taking the time to read this and have a great day!

Ken Mascia, (248) 644-1200, NMLS 135323

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