November 23, 2019
There are many types of FHA home loans, so it’s easy to get confused in what looks like an alphabet soup of loan options. We get questions about these loan options quite often, but here’s a variation on one we haven’t seen in a while:
“We are looking to purchase a HUD house that needs a lot of work including sewer system, plumbing, ceilings repaired. Would an FHA 203b loan be available in addition to the traditional FHA loan? If the 203b is available, how does it work in terms of repayment?”
The reader might be thinking of a type of FHA home loan/refinance loan option known as the 203(k), which is also called an FHA rehab loan in some circles. It provides money for the purchase and renovation of a home at the same time.
The 203 B loan mentioned in the question, on the other hand, is essentially the FHA standard single family home loan. The FHA/HUD official site has a section that explains the hows and whys of the FHA 203b loan:
“What is the purpose of this program?
To provide mortgage insurance for a person to purchase or refinance a principal residence. The mortgage loan is funded by a lending institution, such as a mortgage company, bank, savings and loan association and the mortgage is insured by HUD.”
Who is eligible for an FHA 203(b)? According to the FHA:
- The borrower must meet standard FHA credit qualifications.
- The borrower is eligible for approximately 96.5% financing. The borrower is able to finance the upfront mortgage insurance premium into the mortgage. The borrower will also be responsible for paying an annual premium.
- Eligible properties are one-to-four unit structures.
- To learn more about the mortgage limits in your area, go here.”
What about the FHA 203k Rehab loan?
According to the FHA and HUD:
“Section 203(k) fills a unique and important need for homebuyers. When buying a house that needs repair or modernization, homebuyers usually have to follow a complicated and costly process. The interim acquisition and improvement loans often have relatively high interest rates, short repayment terms and a balloon payment.”
“However, Section 203(k) offers a solution that helps both borrowers and lenders, insuring a single, long term, fixed or adjustable rate loan that covers both the acquisition and rehabilitation of a property. Section 203(k) insured loans save borrowers time and money. They also protect the lender by allowing them to have the loan insured even before the condition and value of the property may offer adequate security.”
The FHA 203k rehab loan may be what’s needed in the situation described in the reader question. Talk to a loan officer to learn what the requirements and benefits of an FHA 203(k) loan might be in your current situation.
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