HUD 203(k) Loans

by Owen Sechrist

     The Federal Housing Administration (FHA), which is part of the Department of Housing and Urban Development (HUD), administers various single family mortgage insurance programs. The Section 203(k) program is the Department's primary program for the rehabilitation and repair of single family properties.   With the 203k program you originate one mortgage which finances both the initial purchase of the property and escrows money to pay for renovations and repairs to the property.  There are several different requirements for this program including that the house must be weatherized before any other upgrades can be considered.  The amount of the loan cannot exceed  110% of the value of the house after renovations are completed.    This differs from the normal process of obtaining financing for a home purchase and remodel significantly.  Usually some type of short term bridge financing is obtained, then a loan to do the remodeling work followed by a refi to roll the short term financing into one long term mortgage.  This type of process typically invovles more fees and financing costs, as well as more hassle.   Only one to four family single dwellings are eligible for this program.  The home must be at least one year old.  Cooperative units are not eligible.  Homes can be demolished and reconstructed as part of this program provided that some portion of the original foundation is used in the rebuilt structure.  Mixed use buildings with commercial or retail space can also fall under this program provided the percentage of the building being used does not exceed certain amounts which vary depending on how many floors constitute the structure.   To find out more about the 203(k) program visit this link, contact a realtor familiar with 203(k) or find an FHA approved mortgage lender.

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