FHA 203K

What is an FHA 203K Loan?

Basically, it’s an FHA loan to purchase or refinance your home with additional funds for your home improvements. FHA which stands for Federal Housing Administration (FHA) is a mortgage insurance and is part of the Department of Housing and Urban Development (HUD). HUD or FHA do not make direct loans to consumers (homebuyers or homeowners) but FHA does insure loans that are funded by approved FHA lenders. FHA insures different types of home loans which one of them is the 203k that is used to rehab properties. The more popular version though is the FHA 203b which does not include funds for rehabilitation.

The Process of the 203k Loan

Find the home you’ll want to purchase and determine what improvements need to be made to the property. The purchase contract offer is written the same as any other, accept you’ll want to make sure that there is language stating the purchase is contingent upon borrower acquiring an FHA 203k Loan.

In order to complete the financing of the improvements, you will need to meet with a contractor to determine what kind of work you are planning and how much it will cost. The contractor will give you a bid, which you’ll need to pass on to the lender. The lender will order an appraisal to determine what the value of the house will be once all of this work is completed. Keep in mind, you’ll also need to be qualified for the full loan amount which is based on the purchase price plus the additional cost of repairs. Once the loan is approved, you will go to closing like you normally would. The amount that will be needed to do all of these repairs or improvements will be placed into an escrow account held by the lender. As the work is being completed, there will be draws from the account to pay the contractor.

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