August 17, 2011
The FHA 203(k) Rehabilitation loan is defined by the FHA as a way to put the purchase and rehab costs of a property into a single loan. “Section 203(k) insurance enables homebuyers and homeowners to finance both the purchase (or refinancing) of a house and the cost of its rehabilitation through a single mortgage or to finance the rehabilitation of their existing home.
The FHA 203(k) is often used to rehab properties, but it can also be used to help families affected by natural disasters in federally-declared disaster areas. The 203(k) comes in both new purchase and streamline refinance versions, and there are rules concerning borrower eligibility and acceptable property types.
For example, the FHA requires rehab construction to comply with HUD minimum property standards plus all local codes. The 203(k) program is not restricted to single-family homes, it can be used for one-to-four unit property with maximum loan amounts identical to the FHA’s main home loan insurance program, the 203(b).
Some wonder if the FHA 203(k) Rehab loan can be used for condominiums. Such rehab is permitted, but there are restrictions. Who is able to use a 203(k) loan for condo rehab?
According to the FHA, “Owner/occupant and qualified nonprofit borrowers only …rehabilitation is limited only to the interior of the unit. Mortgage proceeds are not to be used for the rehabilitation of exteriors or other areas which are the responsibility of the condominium association, except for the installation of firewalls in the attic for the unit…”
Another question some have about the 203(k) rehab loan program–can a mixed-use building (such as one with a storefront) be eligible for an FHA 203(k)? The FHA rules state, “Yes. Mixed-use residential property is acceptable provided the property has no greater than 25% (for a one story building); 33% (for a three story building); and 49% (for a two story building) of its floor area used for commercial (storefront) purposes.”
FHA rules for such loans include a restriction on how the money can be used. “The rehab funds can only be used for the residential functions of the dwelling and areas used to access the residential part of the property. FHA 203(k) funds can also be used to purchase FHA Real Estate Owned (REO) properties. We’ll cover that subject in another blog post.
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.
Browse by Date: