It’s rare that a home buyer finds their perfect home – one that doesn’t need anything in the way of repairs or updating. In fact, many times it might be your only option in the marketplace, depending on your price point and location.
You may wonder how you can afford to both purchase a home and still have enough money to put into renovations. The Federal Housing Administration’s 203(k) Rehabilitation Loan Program could be the answer.
A 203(k) loan can be used by home buyers to buy and renovate a property, and by current homeowners to refinance and renovate their current home. Those projects can include everything from kitchens and baths all the way to adding an Accessory Dwelling Unit or converting a single-family home into a duplex. Upgrades to increase energy efficiency are also eligible.
FHA offers two variations of the 203(k) program: the Standard 203(k), which may be used for substantial remodeling and repairs, and the Limited 203(k), which may be used for minor remodeling and nonstructural repairs. Recent enhancements modify both programs to make them more attractive to consumers by:
- Increasing the allowable total rehabilitation costs a borrower can finance under the Limited 203(k) program from $35,000 to $75,000 and reviewing this limit annually to ensure it continues to keep pace with market conditions
- Providing more time for rehabilitation and repair work to be completed by extending the rehabilitation period to 12 months for the Standard 203(k) and nine months for the Limited 203(k)
203K Loan Rules to Follow
- The repairs must total at least $5,000, and the total property value must stay within federal lending guidelines for FHA loans.
- All improvements must be permitted and constructed to code.
- Repair funds cannot be used for adding features like swimming pools, outdoor firepits, or gazebos.
- Borrowers can only complete covered repairs with pre-approval from FHA, showing that they are a general contractor or have previously completed rehabilitation work.
- All borrowers must follow program guidelines, otherwise the repair funds may have to be returned.
For more information on 203(k) loans and whether they are right for you, talk to your mortgage lender, or visit 203(k) Rehabilitation Mortgage Insurance Program Types | HUD.gov / U.S. Department of Housing and Urban Development (HUD).
