By Jason Kotar
RISMEDIA, Oct. 29, 2008-After publishing an article last week titled, “Understanding FHA,” I received quite a few comments regarding FHA – Rehab loans. Here is a summary of more detailed information on the Rehab loan.
Section 203k loans are a key part of the FHA’s efforts to rehab and repair owner occupied, one to four unit properties. I make this distinction because the program includes condos, “mixed use” residential and other qualified properties. It can also accommodate purchases of existing properties as well as refinances.
A key difference between a 203k loan and most mortgage programs is the method of financing. Traditional mortgages require that a home equity line of credit or similar financing be arranged to pay for the rehab after the initial home purchase and mortgage were completed. With a 203k loan, one loan covers both the purchase and the rehab of the property by basing the mortgage on the projected value of the property. FHA allows for fixed 15 or 30 year loans as well as 1 year arms.
The 203k has two primary programs, one for “minor” repairs, a second for “major” repairs. The principle difference between the two, “major” repairs require architectural plans or structural repairs, while “minor” repairs can be completed without plans requiring review or approval. Minor repairs can total up to $35,000 in rehab costs and must be completed within six moths of purchase.
As with any loan program, there are a number of stipulations that need to be met. First, the property has to qualify as well as the end value of the property, including the rehab. That is why it is important to choose the right FHA approved lender. Not all FHA approved lenders service 203k loans.