The Federal Housing Administration (FHA) administers various single family mortgage insurance programs. These programs operate through FHA-approved lending institutions who fund the mortgage loans which the Department insures. The Section 203(k) program is the Department’s primary program for the rehabilitation and repair of single family properties.
How is it different
The 203(k) loan is different from a traditional mortgage loan and it is ideal for properties that need improvement. For example:
When a home buyer wants to purchase a house in need of repair or modernization, the homebuyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods. The Section 203(k) program was designed to address this situation. The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property. To provide funds for the rehabilitation, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work.
Eligible improvements
There is no minimum requirement for improvements. Improvements may also include a detached garage, a new detached garage, or the addition of an attached unit (if local zoning allows it).
The mortgage must include one or more of the items listed below:
- Structural repairs and alterations.
Includes such items as additions to the structure, repairing any and all structural damage
- Improvements in the functionality or modernization.
Includes such items as remodeled kitchens and bathrooms.
- Changes for aesthetic appeal, and the elimination of obsolescence.
New exterior siding and new doors.
- Repair or replacement of polumbing, heating, air conditioning or electrical systems.
Installation of new plumbing fixtures are acceptable including interior whirlpool bathtubs.
- Replacement of flooring, carpeting or tiling.
- Energy conservation improvement
New double pane windows and doors, storm windows, insulation, solar domestic hot water systems.
- Major landscape work and site improvement
Patios and terraces that improve the value of the property equal to the cost, or that are needed to preserve the property from erosion. Tree removal is also acceptable if the tree presents a hazard to the occupants.
The following items can be included in the work to be completed. There are no minimum requirements:
- New cooking ranges, refrigerators and other standalone appliances.
- Painting and other cosmetic repairs
- Fencing, new walks and driveways, and general landscape work (trees, shrubs, etc)
- Repair of a swimming pool, up to $1,500
Not eligible:
- Items that will not become a permanent part of the property.
- Luxury items, including new swimming pools, exterior hot tubs, sauna, spas, tennis courts and barbecue pits.
You can read about the 203(k) loan program in much more detail in the HUD site.
