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In a blog a few months ago, I talked a little about what FHA Uninsurable means, and the financing options for the FHA Uninsurable (UI) home. One such option is an FHA 203(k).

 

Right now, in our market, inventory is so low that "ugly" houses that would have taken months to sell a few years ago are now being snapped up as soon as they hit the market, often for over list price. Still, a lot of homebuyers don't have the cash for both a down payment and renovations to turn the "dog" house  into a "doll" house. 

 

The FHA 203(k) is a remarkable loan product for owner-occupants that allows not just the purchase of the home, but also funds to complete needed repairs and upgrades. A Limited 203(k) (aka Streamlined) allows financing of up to $35,000 into a mortgage to repair, improve, or upgrade a home. The regular FHA 203(k) requires some extra steps and some extra footwork on both the buyers' and lenders' part, but is well worth it if the improvements are needed and within the FHA guidelines for the  area.

 

 As HUD.gov explains:

 

Homebuyers and homeowners can quickly and easily tap into cash to pay for property repairs or improvements, such as those identified by a home inspector or an FHA appraiser. Homeowners can make property repairs, improvements, or prepare their home for sale.  Homebuyers can make their new home move-in ready by remodeling the kitchen, painting the interior or purchasing new carpet.

 

The limited 203(k) and the regular 203(k) can be used for repairs/renovations/upgrades that are relatively small (though they must be at least $5000) to virtual reconstruction.  The amount of the purchase price plus the amount of renovations (as determined by licensed contractor estimates) are the amount of the loan (less down payment). Renovation begins after closing, and the lender holds contractor payments in escrow until the work is complete.

 

Many HUD homes (Insurable, Insurable with Escrow, Uninsurable) are designated as eligible for 203(k) loans. There are lots of options for a 203(k), not just HUD homes, but one caveat: Make sure your lender has experience in the 203(k) process for a smoother trip from a drab house to a fab home!

 

Tony Smith

Wanda Smith & Associates