FHA Rehabilitation Loans - What you need to know

FHA 203(k) allows the cost of rehabilitation or home improvement to be included in a purchase or refinance loan and work. One loan finances the purchase and improvements.

The 203(k) is a great marketing tool that can bring added value to real estate agents. While it is a great tool to rehabilitate trashed REOs it also can be used to upgrade homes. The primary criteria are: the improvement is a permanent part of the real estate and the improved home's value must be comparable to similar homes in the neighborhood.

There are many uses for the 203(k)

• Rehabilitate
• Energy efficient improvements
• Rebuild
• Remodel
• Add Rooms
• Move homes to new lots. •
  • 203k cannot be funded until home is permanently secured to new foundation.
• Start with an existing bare foundation and build a new home.

Underwriting guidelines for borrower are the same a regulor FHA

• Must be owner occupied
• There are no borrower income limits.
• No purchase price restrictions
• Borrower's minimum investment is 3.5%

Finding an experienced, financially stable contractor is key.

• Contractor must understand 203k guidelines
• Must have the financial ability to carry a portion of the project until they are paid,
• Their bid must be accurate because there is no additional funding after close of escrow.