The Department of Housing and Urban Development (HUD) created the FHA 203(k) to fix rehab homes and remodel old ones. They used to have the top construction and rehab loans until major lenders stepped up and offered better loan programs to customers. Now that credit requirements are tighter and loan limits are higher, the FHA 203(k) is getting more of the attention it is accustomed to.
What is FHA 203(k)
This program stands out because it not only allows single family through four unit homes in the program, but condominiums as well.
Although the FHA 203(k) is much like a regular construction loan, there are limitations. The homeowner cannot add amenities to the home. The FHA 203(k) is designed to make a home habitable and affordable.
FHA-Approved Lenders
The Department of Housing and Urban Development does not make loans directly to homebuyers. Instead, it provides insurance to protect lenders in case a mortgage or loan falls through. This process allows lenders to provide more loans to more customers. If the homeowner defaults on a loan or mortgage, HUD will pay the lender. It is actually a good situation for the lender because they will receive their funding regardless.
There are local FHA approved banks and financial institutions who screen applicants for the FHA 203(k) loan. HUD and other programs fund these institutions. When an applicant passes the credit check and the potential home is inspected, the lender provides the funding by which HUD insures.
The applicant has to have the home or property inspected and it has to be approved in order to receive funding.
Limits
As with any loan, this construction loan requires decent credit and a stable income. There are limits to how much mortgage a qualifying applicant can get. Limits are different in each state’s county. One county may be lower than the next. It is important to call your local HUD office to find out what it is in your area.
Qualifying
Established to help low-income families own a home, the Department of Housing and Urban Development partnered with other programs to reach out to the community.
A home that qualifies for the FHA 203(k) construction loan or refinancing is in need of either repair or rehabilitation. The home must also have a foundation. The owner must reside in the home; it cannot be rented out. The area the home is located in must be in an area acceptable to FHA.