Renovate Your Home with a FHA Loan from Approved 203K Lenders

FHA (Federal Housing Administration) runs a number of residential mortgage insurance programs to help homebuyers and homeowners with financing for their homes. Contrary to popular belief, FHA does not either underwrite or actually fund the mortgages that meet its lending program guidelines. FHA programs like 203k loans are entirely handled through FHA approved lenders that originate, underwrite and close them based on the requirements set forth by FHA. FHA 203k programs allows borrowers to get the necessary financing needed for the renovation of their primary residences. FHA approved 203k lenders can process your loan application and determine the property's eligibility for financing of the repairs that qualify.

The FHA section 203(K) home loans can be used to finance the purchase a new property and also any necessary repairs that may be needed to bring the property in to good shape, suitable for occupancy. FHA 203k lenders can also refinance an exisiting loan and provide the required funds for completing any rehabilitation work that may deemed necessary. The primary objective of a 203k loan is to aid in the improvement of run down neighborhoods by providing the funds to repair residential homes that need fixing up. FHA 203k loans are being increasingly used by borrowers looking to purchase foreclosed homes at auctions or bank REO departments.

A number of eligible 203k lenders are actively participating in the 203k program to rehabilitate residential properties in neighborhoods around the country. Even local and state agencies, non-profit organziations can seek funds through 203k loan programs. Additionally, they combine the section 203(K) with other HUD programs and grants to raise sufficient funds for large renovation projects.

HUD also views a lender's participation in 203k as a demonstration of their commitment towards lending to lower income groups and aid in community revitalization. The communiy reinvestment act (CRA) also has provisions that expect 203k lenders to fulfill these responsibilities.

Borrowers who need any information or have any questions regarding eligibility and qualification under 203k loan guidelines should contact an FHA approved 203k lender to assist them. the HUD website has a complete list of lenders who have handled at least one 203k loan in the past 12 months.

How is FHA 203K Loan Different?

A majority of the home loans made by conventional lenders only offer permanent financing. This basically means that a lender will generally not fund a home loan unless the property's condition is good and needs no additional repairs. This is done to ensure that the property on which the loan is originated offers sufficient security in case of a foreclosure due to borrower defaulting on their payments. In situations where there may be a need for rehabilitation or additional improvements, the lender will expect the seller or borrower to have them completed prior to funding the purchase.

When a homebuyer decides to purchase a residential dwelling, they first need to secure the purchase funds and then seek additional funds to deal with the repairs and improvements. As most conventional lenders avoid such scenarios, traditionally, borrowers had to rely on hard money lenders for such situations. Once all the repairs are done, they again have to approach a residential lender to refinance the high-interest hard money loan and seek a conventional permanent loan with a better interest rate and a longer term. FHA devised their 203k loan program to address borrowers faced with the difficulties mentioned above. With a 203k loan from a FHA 203k mortgage lender, the borrower can just get one loan for both the acquisition and renovation. Additionally, the interest rates on FHA loans are usually are comparable to other conventional purchase loans. The loans can be either fixed-rate or adjustable and allow for a longer term, usually 15-years or 30-years.

The amount of rehabilitation funds allowed with a 203k FHA loan is determined by the lender based on the after repair value of the property. In addition to the acquisition price, the scope of work to be done and the cost associated with it will determine the exact rehab amount that will be approved by the FHA 203k lender. FHA through its insurance program mitigates the lender risk by insuring the entire allowable amount according to its financing guidelines. After the loan closing, HUD endorses the loan application as soon as the funds are disbursed and an escrow account to make payments for rehabilitation work is established.

The type of repairs eligible under 203k are clearly detailed in the FHA handbook. Any luxury items and improvements may be disallowed. In addition to major repairs, FHA 203k funds can be used for painting, addition of new rooms, decks, porches and other such cosmetic changes. Before taking up any general improvement works, the essential repairs related to the safety, soundness and energy conservation have to be finished.

An FHA 203k lender with experience in handling all the essential steps related to rehab loan approval process and management should be consulted to ensure a smooth approval process. The documentation required may be extensive and it would be beneficial to you to seek the services of qualified 203k consultants, contractors and mortgage brokers. Once all the requirements are carefully addressed, a 203k FHA lender will seek HUD endorsement and fund your new 203k loan to finish all repair work.