The FHA wants to help you Rehab your home! Lenders offer the FHA 203(k) program.
HUD continues to strongly support lenders who offer the FHA 203(k) program.
The primary reason that the government provides funding to the department of Housing and Urban Development is to encourage lenders to make money available for loans that they would normally deny. While the FHA does not lend money directly to borrowers they insure loans for lenders.
HUD’s stated goal is to expand the opportunities for home ownership while ensuring declining neighborhood’s stability and promote their revitalization. To meet these goals the FHA 203(k) program provides funding for the repair and rehabilitation of single family residences.
The FHA 203(k) program might be right for you if…
The FHA 203(k) program might be a good fit for you if you are looking to purchase a home in need of repairs or updating. Most lenders will not lend money on homes that are in less than “average” condition. The 203(k) program provides insurance to lenders who make these loans. In addition lenders who make these loans are helping to fulfill their responsibilities under the Community Reinvestment Act. That makes this program a win-win for both you and the lender.
How the FHA 203(k) program works
Normally when you buy a home that needs repairs you would need to get a loan for the home and then secure a second (usually higher interest) second loan to complete the needed repairs and finally, refinance to consolidate the loans. This results in multiple lender and appraiser fees that can be prohibitive. Under the FHA 203(k) program the loan is made for the projected value of the home after the repairs are complete.
Start the Process
Once you have located a home that you wish to purchase you will need to work with your Real Estate Agent to determine if it is eligible for the FHA (203k) program.
It will begin with a marketability analysis that will determine the extent of the repairs needed, a rough estimate of the cost of the needed repairs and the expected market value of the home after the repairs have been completed.
FHA 203(k) Eligible vs. Required Repairs
Luxury items are not allowed under the FHA 203(K) program. All health and safety issues must be addressed. The funds can be used for painting, adding decks and even room additions even if no other repairs are needed.
Here are some of the items that must be addressed
1) Addition to existing structure. New construction must conform with local codes and HUD Minimum Property Standards in 24 CFR 200.926d.
(2) Rehabilitation of Existing Structure. To improve the thermal efficiency of the dwelling, the following are required:
a) Weatherstrip all doors and windows to reduce infiltration of air when existing weatherstripping is inadequate or nonexistent.
- b) Caulk or seal all openings, cracks or joints in the building envelope to reduce air infiltration.c) Insulate all openings in exterior walls where the cavity has been exposed as a result of the rehabilitation. Insulate ceiling areas where necessary
d) Adequately ventilate attic and crawl space areas. For additional information and requirements, refer to 24 CFR Part 39.
a) Heating, ventilating, and air conditioning system supply and return pipes and ducts must be insulated whenever they run through unconditioned spaces.b) Heating systems, burners, and air conditioning systems must be carefully sized to be no greater than 15 percent oversized for the critical design, heating or cooling, except to satisfy the manufacturer’s next closest nominal size.
(3) Replacement Systems.
B. Smoke Detectors. Each sleeping area must be provided with a minimum of one (1) approved, listed and labeled smoke detector installed adjacent to the sleeping area.