Most lenders will only provide a loan under certain conditions. Primarily among them
is the value of the home should be sufficient to cover the sale of the property if the
homeowner fails to repay the loan. This protects the lenders investment and ensures that
a homeowner is not getting in over their head.
But what about a home that is run down and in need of extensive repair? These homes
are not worth nearly what they would be if they were in good condition. And you can’t
make repairs on a home that you don’t own. The FHA has a solution for this situation.
It’s called the FHA 203k program. The program allows for up to $35,000 in repairs or
A typical example of how this program is used is called a “handyman’s special”. The
home has to meet certain eligibility requirements. It has to be a 1 to 4 unit property for
example. As long as the local zoning in place, converting a single unit proper to multiple
units or vise versa is acceptable. It is a very flexible and far reaching program for all
types of rehabilitation and upgrade situations.
The FHA 203k loan is a single loan that covers the cost of the property and its repairs.
There is no need for a high interest construction loan and then refinancing to consolidate.
A homeowner can expect a loan amount based on the expected home value once repairs
or upgrades have been made.
The primary use of the program has been and still is the redevelopment of run down
buildings. But there are certain limitations. The funds are intended to cover the costs
repairing the interior of the building. Roof and siding for example are not covered. If
you make the needed repairs yourself, you can not receive payment for your labor, just
the cost of materials used.
To apply for an FHA 203k loan you will need to apply with an FHA approved lender.
You will need to prepare a detailed cost analysis of the work that needs to be done as
have an appraisal done to determine what the home will be worth after the upgrades have
Once you have closed on the loan and are ready to start the rehabilitation process, the
money for improvements has already been set aside in an escrow account and is ready
to be drawn on. In some cases where the home is not in livable condition, you can
escrow up to 6 months of mortgage payments to get you through the renovation process.
Overall, the FHA 203k is an extremely helpful program for run down homes and
neighborhoods. It provides for homeowners to make needed repairs without going
through several loan approval processes and refinancing high interest rate construction
loans. If the home you want to buy is a fixer upper you will most likely find that the
FHA 203k loan is the best loan program out there for you.