The FHA 203K program is a type of mortgage insurance that the Federal Housing Administration branch of the Department of Housing and Urban Development offers. Unlike some FHA mortgage loans, the 203K program is actually not a loan to purchase a home; instead, it’s a type of guarantee to a lender that allows a potential buyer to get a loan to repair and renovate a property. It’s designed to help revitalize a neighborhood and to provide additional homeownership opportunities.
Generally, lenders will not provide mortgages to buy a home that is in such disrepair that it can’t be lived in or insured. The property first must be purchased and rehabilitated so that it can be insured by a homeowner’s policy. Then the buyer can apply for a mortgage to pay off these initial loans. However, many people do not have the money to purchase and repair a property first. These initial loans are often done at a very high-interest rate and must be paid back quickly.
With a HUD 203K-backed mortgage, however, the buyer can get a single loan that can be used to both purchase and repair the property without worrying about high rates or short loan periods. This loan, which may be a long-term fixed loan or may be an adjustable-rate mortgage, is endorsed and guaranteed by HUD. The 203K insurance provides the lender with the assurance that the loan will be paid back.
Who Qualifies for FHA 203K Insurance?
In order to qualify for FHA 203K insurance, you must be purchasing a property that was fully completed at least a year ago. While the loan is designed to renovate the structure, the home can be demolished and rebuilt using the funds as long as some of the existing foundation remains and is used in the new building. You can also use the mortgage to move another home to the property, but the loan cannot be used to renovate the moved structure until the foundation has been inspected and cleared for use.
A mortgage-backed by the FHA 203K program can be a single-family home or may house up to four families (a quadplex). It can also be used to change a single-family home into a multi-family dwelling or to reduce a multi-family dwelling.
Note that improvements classified as luxury additions are not allowed. All improvements must comply with HUD standards.
*The down payment associated with this offer is from the borrower’s funds (the borrower’s funds must be sourced and can include gift funds or funds from approved Down Payment Assistance program). The down payment cannot be from the lender credit or a seller credit. Restrictions apply, consult your Personal Mortgage Advisor for details.
All home lending products are subject to credit and property approval. Rates, program terms and conditions are subject to change without notice. Corporate NMLS Unique Identifier # 32416. Verify a mortgage company or individual license on the Nationwide Mortgage Licensing System Consumer Access site: www.nmlsconsumeraccess.org. The interest on the portion of the credit extension that is greater than the fair market value of the dwelling is not tax deductible for Federal income tax purposes: and the consumer should consult a tax advisor for further information regarding the deductibility of interest and charges. U.S. Dept. of Housing & Urban Development Mortgagee-FHA Lender ID # 23773-0000-0, 23773-00017 (Unconditional Direct Endorsement Approved), USDA SFHGLP Approved, Department of Veterans Affairs VA Automatic Lender 56997-00-00. Nations Lending Corporation®