FHA 203k: For Home Buyers and Homeowners Alike
Did you know you can refinance and remodel with the same mortgage loan option as a home buyer looking to get into a fixer upper? Let me explain. There's a mortgage option from the Faderal Housing Administration (FHA) called the FHA 203k. This mortgage loan allows a buyer to pay for the purchase price of the home plus needed repair or desired home improvements. It's a great option for buyers considering a fixer upper home that needs some TLC. But it's also an option if you own your house and want to add onto it or remodel the home. The best part? It's not a home equity line of credit, so you don't need to have current equity in your house.
Here's how it works. The FHA 203k is based on the after-improved value of the home, once the work is done. So if you have no equity right now but your remodeling will add $20,000 in value, then you can finance that work into the refinance mortgage with the 203k.
Home buyers can make this happen at the beginning of the transaction by finding a house with potential, going with the 203k right away and rolling it all into one. Homeowners can refinance and remodel, rolling the appraised value of the house and the renovations all in one.
For the official word on this renovation loan, let's go right to the source, the FHA. Here's an excerpt from its website:
The Federal Housing Administration (FHA), which is part of the Department of Housing and Urban Development (HUD), administers various single family mortgage insurance programs. These programs operate through FHA-approved lending institutions which submit applications to have the property appraised and have the buyer's credit approved. These lenders fund the mortgage loans which the Department insures. HUD does not make direct loans to help people buy homes.
The Section 203(k) program is the Department's primary program for the rehabilitation and repair of single family properties. As such, it is an important tool for community and neighborhood revitalization and for expanding homeownership opportunities. Since these are the primary goals of HUD, the Department believes that Section 203(k) is an important program and we intend to continue to strongly support the program and the lenders that participate in it.
That's the official word. In a more conversational tone, here's the scoop. With a 3.5% down payment you can finance remodeling projects into the same mortgage payment as your house. You can pay for things like:
- new windows
- kitchen remodel
- new kitchen appliances
- build an attached garage
- add or repair a deck/porch
- roof repair
- gutters & downspouts
- bathroom remodel
- add a room (bedroom, bathroom, dining room)
- furnace or water heater replacement
- geo-thermal furnace
There are other FHA 203k projects you could have done, but that gives you an idea.
Looking to buy or renovate a duplex? You can! Check this out:
The property must be a one- to four-family dwelling that has been completed for at least one year. The number of units on the site must be acceptable according to the provisions of local zoning requirements. All newly constructed units must be attached to the existing dwelling. Cooperative units are not eligible.
Homes that have been demolished, or will be razed as part of the rehabilitation work, are eligible provided some of the existing foundation system remains in place.
In addition to typical home rehabilitation projects, this program can be used to convert a one-family dwelling to a two-, three-, or four-family dwelling. An existing multi-unit dwelling could be decreased to a one- to four-family unit.
In today's housing market, this is golden. You can turn your home into a duplex (or more) and rent out the extra space, paying off your mortgage with the rent you take in from tenants. It's just one more option for home buyers and homeowners alike.
Learn more about the FHA 203k with our free guide. Download the "FHA 203k Survival Guide" at the button below. The free guide covers what else is covered (and by which version of the loan - Full 203k and 203k Streamline), how it works and more.