FHA 203k Rehabilitation Home Mortgage loans are used to Purchase or Refinance and rehabilitate an existing One to Four family residences (Residence must be 1 year old) that will be used for residential purposes. FHA approved Condos are eligible as well.

With Conforming loans a lender will not release mortgage proceeds unless the condition and value of the property provide adequate loan security and, therefore, will require completion of any rehabilitation before closing the mortgage. The 203(k) program is intended to help a purchase/refinance a house in need of repair or modernization without having to get high-interest interim loans to purchase the dwelling and to do the rehabilitation construction and then secure permanent financing when the work is completed to pay off the interim loans.

A homeowner who purchased a property with cash can refinance the property using a FHA 203k loan within six months of purchase, just as if he had originally purchased the property with a 203(k) loan, and receive cash back, less any down payment and closing cost requirement for the 203(k) loan.

Eligible improvements include items such as structural alterations, additions, reconstruction, remodeling, new siding, plumbing, painting, decking, heating, air conditioning, electrical systems, roofing, flooring, carpeting, energy conservation improvements and major landscape work.

In some cases the mortgage requires both an appraisal on the as-is value of the property and an appraisal on the estimated market value when the work is complete.  The minimum investment, mortgage term and MIP are the same as under the FHA Purchase program (97% LTV). The mortgage amount may include funds for the purchase of the property or the refinance of existing indebtedness, the costs incidental to closing the transaction and the completion of the proposed rehabilitation.

FHA 203k maximum Loan amount is the lower of the following:

-    The as-is value, if appraised, or the contract sales price, plus the cost of repairs and improvements; or

-    The existing debt on a refinance plus the repair costs.

A 203(k) begins when mortgage proceeds allocated for the rehabilitation are placed into a rehabilitation escrow account. Proceeds allocated for the purchase of the property will be released, while those for the rehabilitation will be escrowed in an interest-bearing rehabilitation escrow account, to be released in draws as work progresses. Inspections of the work are performed by HUD-approved fee inspectors. A 10% holdback is required on each release from the rehabilitation escrow account.

For a Step by Step Checklist on the 203(k) loan process, or to find out if you qualify for a 203(k) loan, feel free to contact me for your FHA 203k Process.

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