Nesting In Nashville Real Estate Blog

203(k) Rehab Loans

203(k) Rehab Loan.

This loan, provided by FHA/HUD, can turn a “fixer-upper” into the home of your dreams. This loan allows you finance the purchseof a home and include the costs of the repairs through a single mortgage. A potion of your loan goes toward the purchase of the land and home. The remainder isplaced in an interest bearing account and released in stages as the rehabilitation is completed. This program works best for low- to moderate income buyers of single-family homes who have at least 3.5% for down-payment. The property must be used at the purchasers primary residence. FHA requires that you use a minimum of $5,000 to go towards eligible repairs.  Other rules include:

• property must be a one-to-four unit home
• Condos in one-to-four unit buildings (interior improvements only)
• mixed-use space that includes partial commercial elements may qualify
• conversion form one unit to 2/3/4 units
• reversion from multi-to-single unit
• relocating home foundation
• if home isn’t livable during rehab process, up to 6 months of mortgage payments can be financed into the morgage

Eligible home improvements include but are not limited to:

• remodeling kitchens and baths
• replacing roof/gutters
• adding family/bonus rooms/bedrooms/baths
• replacing flooring
• basement/attic conversion
• upgrading systems (HVAC, plumbing, electric)
• eliminating health hazards (lead based paint)
• handicap accessibility
• adding porch/deck/patio
• siding/painting
• installing energy efficient windows

The Process:

After a home is identified,  your real estate agent will help to craft an offer in which the sale in contingent upon 203(k) approval. HUD will then assign you a 203(k) consultant to help determine the needed amount of repairs, improvements as well as the anticipated costs. HUD may or may not require the use of certified vendors for each project.

Note:  The closing process for a 203(k) loan can take significantly longer than a typical home purchase. Finding a seller to to accept such an offer isn’t always an easy task. Also, the volume of paperwork required as well as the time required in the repair bidding can be trying. That being said, rehabbing a home can be an excellent way to build equity and personal wealth. FHA now requires PMI payments for a minimum five years on all loans.