What is a 203K Loan?

If you're like many home buyers, you have come across a number of homes that would be “perfect” . . . if only the kitchen, the bathroom, or basement were updated. Or perhaps, there was a structural issue; or something about the house that prevented the home from being financed. If only you could combine the purchase and renovation with just one loan. Well you can, and it’s called the FHA 203k home loan. This HUD insured mortgage combines the purchase financing and rehab cost together in one loan, with one monthly mortgage payment. There are two “FHA 203k loans”, the standard, sometimes called the full FHA 203k loan and the FHA 203k streamline loan. Let’s take a look at the standard 203k loan.

Standard FHA 203k

The standard FHA 203k rehab mortgage covers requires a repair budget in excess of $35,000. The minimum amount that can be borrowed is $5,000. This loan is designed for major renovation and improvements for example:

Structural alterations and reconstruction; including repair or replacement of the chimney
Additions to the structure, provided, the addition is attached to the existing dwelling. Detached garage(s) are also eligible
Installation of an additional bath(s)
Skylights
Attics and/or basements may be finished
Termite damage repair and the treatment against termites or other insect infestation
Conversion from a single family house into a multi family dwelling (i.e. two to four units) and vise versa
Exterior siding
Second story addition to the house
Covered and enclosed porch
Stair railings
Attached carport
Connection to public water and/or sewer system
New plumbing fixtures
Interior whirlpool bathtubs
Well and/or septic system installation
Landscape work (major) and site improvements
Patios and decks, and terraces that enhance the property value equivalent to the dollar amount spent on the improvements or required to preserve the property from erosion
Existing walks and driveway rehabilitation is acceptable, provided it affects the safety of the property
Improvements to aid in the accessibility for a disabled person, for example, redesigning kitchens and bathrooms for wheelchair accessibility, installing larger doorways, and exterior ramps

Streamline FHA 203k

The 203K streamline is designed for minor repairs. Up to $35,000 may be financed into the mortgage for improvements or upgrades to an existing home. There are no minimum repair costs. Think of the Streamline FHA 203k as the “light” version of the Standard 203k home loan. This loan is ideal for homes that are technically unsalable because of condition.

Eligible improvements of the 203K Streamline

Repair/Replacement of roofs, gutters and downspouts
Repair/Replacement/upgrade of existing heating and cooling systems
Repair/Replacement/upgrade of existing plumbing and electrical systems
Repair/Replacement of flooring
Minor renovation, such as kitchens & baths, which do not involve structural repairs
Painting, both exterior and interior
Weatherization, including storm windows, and doors, insulation, weather stripping etc.
Purchase and installation of appliances, including free standing ranges, refrigerators, washers/dryers, dishwashers and microwave ovens
Septic system and/or well repair or replacement
Accessibility improvements for persons with disabilities
Lead based paint stabilization or abatement of lead base paint hazards
Repair/replace/add exterior decks, patios, porches
Basement finishing and renovation which does not involve structural repairs
Basement waterproofing
Window and door replacements and exterior wall re-siding

Ineligible improvements of the 203K Streamline

Renovation involving structural changes, like moving a load bearing wall, or new construction like adding rooms
Landscaping
Luxury items like swimming pools, hot tubs, tennis courts, etc.
Work that will not start within 30 days of loan closing or will cause the borrower to be displaced from the home for more than 30 days or renovations that will take more than 6 months to complete.