June 26, 2012
The FHA describes its 203(K) Rehab loan as, “the Department’s primary program for the rehabilitation and repair of single family properties. As such, it is an important tool for community and neighborhood revitalization and for expanding homeownership opportunities.”
“Since these are the primary goals of HUD, the Department believes that Section 203(k) is an important program and we intend to continue to strongly support the program and the lenders that participate in it.”
But what are the rules for an FHA 203(k)? There are some restrictions on the type of property that can be rehabbed under this program, as well as requirements for the condition of eligible properties.
For example, “To be eligible, the property must be a one- to four-family dwelling that has been completed for at least one year. The number of units on the site must be acceptable according to the provisions of local zoning requirements. All newly constructed units must be attached to the existing dwelling. Cooperative units are not eligible.”
The FHA allows 203(k) loans for homes intended to be converted from a single-unit property to a multi-unit, or vice-versa. According to the FHA official site, “this program can be used to convert a one-family dwelling to a two-, three-, or four-family dwelling. An existing multi-unit dwelling could be decreased to a one- to four-family unit.”
These loans can also be used for mixed-use properties that combine residential and business use, but the building must meet specific FHA loan rules that govern the business use of such a structure. “A 203(k) mortgage may be originated on a ‘mixed use’ residential property provided”
“(1) The property has no greater than 25 percent (for a one story building); 33 percent (for a three story building); and 49 percent (for a two story building) of its floor area used for commercial (storefront) purposes; (2) the commercial use will not affect the health and safety of the occupants of the residential property; and (3) the rehabilitation funds will only be used for the residential functions of the dwelling and areas used to access the residential part of the property.”
Damaged or destroyed properties under an FHA 203(k) must meet the following requirements: “Homes that have been demolished, or will be razed as part of the rehabilitation work, are eligible provided some of the existing foundation system remains in place.”
For more information on the FHA 203(K) loan, eligible properties or other FHA loan rules, contact the FHA directly at 1-800-CALL FHA.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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