A Loan For Homebuyers Who Want to Renovate a Home
Did you know that the federal government sponsors a loan for homeowners who want to renovate a home?
The loan, insured by the U.S. Department of Housing and Urban Development (HUD), is intended for homeowners who are interested in rehabilitating and repairing a home. The goal of the program is to maintain community revitalization efforts and to expand homeownership opportunities.
Here are some frequently asked questions about the 203k program:
What is it?
A loan offered to homebuyers who want to buy a home that needs work.
Why is it called 203K?
203K refers to Section 203(k) of the National Housing Act (NHA), which stipulates the guidelines for the program.
Is 203K a federal loan?
No, HUD doesn’t offer any loans. The loan is offered by various FHA-approved lending institutions. HUD insures the loan per 203K program guidelines.
How is 203K different than other loans?
The 203K is designed for the homebuyer who is interested in buying a property that needs renovation. The 203k helps homebuyers avoid having to get separate loans, some of them short-term loans with higher interest rates, to finance the purchase price and renovation. With 203K, a homebuyer can finance both the purchase and rehabilitation of the property.
How does it work?
The mortgage amount of a 203k loan is based on the projected value of the home with the planned renovation. The loan amount, which also takes into consideration the cost of the labor need to renovate the home, is endorsed by HUD once the mortgage proceeds have been disbursed and an escrow account for rehabilitation has been established.
Can investors apply?
No, investors are not eligible.
Is any property eligible for a 203k loan?
No, but several different types of home qualify, including some individual condo unit and homes that will be demolished but whose existing foundation systems will remain intact. To qualify, the property must be a one- to four-family dwelling that has been completed for at least one year. For a full listing of eligible properties, go to the HUD website.
What happens if the renovation work ends up costing more than the loan provided?
This is why it’s important to choose an experienced contractor such as Unique Properties Company who can provide an accurate estimate of the work that’s need to renovate the home.
Can I use the rehabilitation funds to pay for all my improvements?
It depends. The guidelines allow homebuyers to use the loan for items such as painting and room additions but not for luxury items and improvements.