What is 203k Financing?

What is 203k financing?

2 Answers

This is a great question, 203k financing is FHA 203k financing, this is a government program and is a part of the FHA family of loan programs offered by many lenders.

It is a program which allows you to purchase your home and be able to financing in certain repairs and upgrades to the home as a part of the mortgage you take on the home, so your down payment is 3.5% of the total of the purchase plus the upgrades/repairs.

In some instances, when there is enough room in the loan to do so, you can finance up to 6 months of the payment ino the mortgage as well. Qualifying is the same as any FHA loan and the loan to value, ( the amount borrowed vs. the value ) goes up to 110% of the appraised value, up to the FHA loan limits in your county; the loan amounts vary from county to county throughout the country as all FHA loans do. These loans also cost more than a standard FHA loan and that amount varies from lender to lender.

The buyer will also work with what is called a HUD consultant on work that it greater then $35k, the help prepare what is called a work write up which is provided to the appraiser to base the appraisal on, in a sense this is using the future value as the lender will use the lesser of the appraised value or total cost, which is the purchase price plus the repair total. I personally believe these HUD consultants are worth their weight in gold and should be used on all transactions, as they also help make sure you are not overpaying for the work by giving you an estimate of what the cost should be in your area for your scope of work being done. 

They are not required below that dollar amount and are known as an FHA 203k streamline due to the lower dollar amount of the scope of work involved.

Some examples of what you can do under this program, but NOT ALL are as follows:

-room additions, flooring, fixtures, bathroom and kitchen remodels, conversion of a carport to a garage, applicances and repairs of all kinds to roofing,plumbing,electrical upgrades. Anything health and safety related or anything considered functionally obsolecent.

I have personally closed many of these loans over the past decade and can not possibly cover everything involved here as they are complex loans, if you have a specific questions regarding a property you are looking to use this loan on; please feel free to speak to myself or any specialist in this area as this is a very different type loan and you will want to be sure you understand it clearly so you get the maximum benefit possible.

This is an FHA Renovation Loan that allows the purchaser and makes repairs using one loan.

Example: You purchased a property for $150,000, the property needs $50,000 in repair cost; your new loan amount would be $200,000. The $50,000 would set in an escrow account where you or your contractor would draw from during the remodeling process. There's two types of FHA Renovations loan, one is a Streamline which allows you to borrow up to $35,000 and requires 1 appraisal, the other allows you more money but require 2 appraisals.

I hope this answers your question, (I am not sure, but it may work for existing homeowners as well who refinance).