You are here: Home > FHA 203k Lenders

FHA 203k Lenders

An FHA 203k Loan is a government insured mortgage program that allows borrowers to wrap the cost of property upgrades into a new 30 year fixed-rate home loan.

Since many homebuyers are finding that most of the foreclosures and short sale listings they are interested in purchasing require a minimal amount of repairs in order to bring them up to personal or bank standards, a 203k loan provides a perfect financing program for borrowers who have a limited budget for downpayment + home improvement repairs.

According To HUD’s Website:

When a homebuyer 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 203k 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. To minimize the risk to the mortgage lender, the mortgage loan (the maximum allowable amount) is eligible for endorsement by HUD as soon as the mortgage proceeds are disbursed and a rehabilitation escrow account is established. At this point the lender has a fully-insured mortgage loan.

The FHA 203k Loan is one of a few popular Rehab Lending programs available that allow buyers to finance minor cosmetic or major structural upgrades at the time of purchase through one 30 year fixed, low interest rate home loan.

Most buyers think that a 203k loan is only for completely rehabilitating a distressed foreclosure or short sale that has been seriously destroyed, is in a bad area or requires a lot of work.

However, a 203k loan can be used to finance any property that fits within standard FHA guidelines, regardless of the amount of home improvement work needed or desired.

Best of all, the approval process for a 203k loan follows the same flexible credit score requirements, income documentation and low downpayment as a basic FHA loan.