203K Home Buyer Loan: What Is It and Who's Eligible
The 203K is a home-ownership loan program originated by the Federal Housing Administration (FHA), which is a division of the Department of Housing and Urban Development (HUD). This type of FHA-guaranteed mortgage loan can allow you to either buy a home that's in poor shape and fix it up, or
Posted — Updated1. A regular 203K is suitable for homes that require structural repair. You will receive an amount equal to the property's as-is value plus the cost of repair OR 110 percent of the estimated value of the home after repairs.
2. A streamlined 203K is faster to process and is more easily obtainable these days. It applies to fixer-uppers that need only non-structural repairs. In this case, the loan amounts to the purchase price plus $35,000.
Due to the increased workload in processing a 203K, it will cost up to 1 percent more than a conventional home loan. Although it may involve additional closing costs as well, a 203K loan might be the only viable route to ownership of a property considered unfit for habitation.
This form of loan applies only to existing construction finished one year or more ago. Although the number of foreclosures and short sales on the market has gone down, there are still homes available for sale that meet the 203K loan criteria. They may be in poor shape because they were used as rental properties, with all the wear and tear that involves, or perhaps they are an inheritance that's being sold off for quick cash. Types of properties that can be financed by this kind of loan are: Dwellings for one to four families, including condos approved by the FHA; the residential portions of mixed-use properties; houses that the buyer plans to move to a new location; and tear-downs, where the buyer will rebuild on at least part of the current foundation.
The necessary paperwork includes: A) a proposal detailing planned work with a cost estimate and B) an appraisal of the home's future value including repairs. You may be asked to provide an as-is appraisal, too.