“What is an FHA 203(k) Loan?
An FHA 203(k) loan is basically the same as a regular FHA [called a 203(b)], but with a twist. An FHA 203(k) loan permits homebuyers to finance repair/improvement money into their mortgage to repair, improve or upgrade their home. With this loan option, homebuyers can quickly and easily tap into cash to pay for property repairs or improvements, such as those identified by a home inspector or FHA appraiser or homebuyer preferences, such as energy efficient improvements, replacement of existing countertops, appliances, floor coverings, etc. There are two types of FHA 203(k) Loans: Standard/Rehab (minimum $5,000 up to 110% of the improved appraised value) & the Streamline (work is less than $35,000…up to 110% of the improved appraised value). Because the FHA 203(k) Rehab loan is more like a construction loan, the most common version is the FHA Streamline 203(k) Loan.
Example: Purchase price is $100,000. Upgrades/Repairs/Improvements will cost $15,000. Borrowers loan amount is $115,000 (max 110% of after fix-up appraised value).
[Use a 203(k) program to buy a foreclosure, refinance and renovate, buy and renovate (with 1 mortgage), or make home repairs after closing. www.203kplus.com © 2010 All Rights Reserved. 203kPlus.com]
What types of repairs and/or modifications are acceptable for an FHA 203(k) Loan?
Any repairs/improvements/modifications/modernizations that add value to and/or improve the property are acceptable for an FHA 203(k) Loan. The improvements must comply with HUD’s Minimum Property Standards (24 CFR 200.926d and/or HUD Handbook 4905.1) and all local codes and ordinances. Structural modifications and any work in excess of $35,000 are NOT allowed for the FHA 203(k) Streamlined Loan, but the FHA 203(k) Rehab does allow for structural modifications and for work in excess of $35,000. Landscaping and luxury items such as BBQ’s, Gazebos, spas, etc. are not allowed for any 203(k) loan. However, limited pool repair (max $1500-subject to lender approval) is allowed under both versions of the FHA 203(k) loan (subject to lender approval).
Examples of allowable repairs/modifications/renovations for the FHA 203(k) loan (not an all-inclusive list):
- Energy Efficient upgrades (windows, insulation, solar systems, etc.)
- Repair/Replacement of roofs, gutters and downspouts
- Repair/Replacement/upgrade of existing HVAC systems
- Repair/Replacement/upgrade of plumbing and electrical systems
- Repair/Replacement of flooring
- Kitchen remodeling
- Painting, both exterior and interior
- Weatherization, including storm windows and doors, insulation, weather stripping, etc.
- Purchase and installation of appliances, including free-standing ranges, refrigerators, washers/dryers, dishwashers and microwave ovens
- Accessibility improvements for persons with disabilities
- Lead-based paint stabilization or abatement of lead-based paint hazards
- Repair/replace/add exterior decks, patios, porches
- Basement finishing and remodeling
- Basement waterproofing
- Window and door replacements and exterior wall re-siding
- Septic system and/or well repair or replacement
- Stuctural repairs/modifications (moving walls, repairing foundations, etc.)
What is an approved 203k contractor?
Because neither HUD nor FHA approves, certifies or endorses contractors for the 203(k) loan program, there is no such thing as an FHA approved contractor for the FHA 203(k) loan. Instead, HUD/FHA requires lenders to “approve” contractors, which means that the lender must review the contractor’s credentials, work experience, licensing information, type of work performed, client references and experience. Since lenders do not have an education program for contractors for the FHA 203(k) loan, they can direct contractors to go through [www.203kcontractors.com] approval process and get listed in the directory before the lender will “approve” them. An approved contractor on this site is a contractor who is experienced/knowledgeable with, has been properly educated on the FHA 203(k) Loan, can work within the guidelines of the 203(k) loan program and understands the necessary and recommended process for the FHA 203(k) loan program. The 203(k) Contractors listed on this directory have completed the 203k Contractor Certification Program and undergone a thorough approval process where their experience/knowledge of the FHA 203(k) program has been verified and tested and business and customer references have been contacted and verified, as well as verification of licensing and insurance. This 203k contractor education program exceeds the credential requirements of all FHA lenders for the 203(k) loan program.”