What is a 203K loan?
The 203K loan is a FHA loan that provides financing for a home that needs to be rehabilitated that traditional banks won’t finance. The home price and cost of fixing the home are rolled into one loan.
How does it work?
A 203K loan helps home owners by making repair costs of a home part of the mortgage payment. The repair part of the loan is put into an escrow account and pays for repairs and contractors.
How is the repair escrow price decided?
The repair escrow of a 203K loan is decided by estimates from contractors. If you have a home that needs plumbing repairs, roofing repairs, electrical repairs, and a dangerous front porch replaced, and contractor (or several!) will come out and give estimates on the required repairs. Those estimates, along with an appraisal help decide how much money is needed for the repair escrow.
Can I do my own repairs?
Yes, but you will still need estimates from contractors to determine the repair escrow. Keep in mind all repairs will have to meet FHA housing requirements, so if you aren’t familiar with home repair, you should probably leave the heavy lifting to the professionals.
Can I get a 203K loan and use the escrow on something besides repairs?
No. The escrow is for the cost of rehabilitating the property only.
Is there a time limit on completing the repairs?
Yes. All repairs must be completed within six months.
Is there a limit to how much money can go into the repair escrow?
Yes. The repair escrow and mortgage cannot be more than the appraised value of the property once it is repaired. If you find a house with an asking price of 50k that, once repaired, would appraise for 90k, then your repair escrow could not be larger than 40k.
Check out this great video for detailed information on how the process works:
If you think a 203K loan might be for you, give us a call. We will be happy to walk you through the process of securing your dream home!
Do it yourself rehab is now being frowned upon by many lenders. Please make sure to call ahead of time and ask your lender if this is allowed. The 203k loan program says, DIY is okay but lenders are starting to put overlays in place that don’t allow it due to problems.
203k loan