1. What is an FHA 203k Loan?
An FHA 203k loan is basically the same as a regular FHA, called a 203(b), but with a twist. An FHA 203k loan permits home buyers to finance repair/improvement money into their mortgage to repair, improve or upgrade their home. With this loan option, home buyers can quickly and easily tap into cash to pay for property repairs or improvements, such as those identified by a 203k Consultant, FHA approved inspector, FHA appraiser or home buyer preferences (see list below). There are two types of FHA 203k Loans: Standard/Full (minimum rehab $5,000 up to FHA maximum loan amount) & the Streamline (minimum rehab $0 – $35,000…cannot exceed FHA maximum loan amount). The FHA 203k Standard/Full loan is more like a construction project, and the FHA Streamline 203k Loan is for more minor improvements.
2. What are the benefits of using an FHA 203k Loan?
Normally, the purchase of a house that needs repair is a difficult transaction, because most lenders will not lend the money to buy the house until the repairs are complete, and the repairs cannot be done until the house has been purchased. HUD’s FHA 203k loan program can allow you to purchase or refinance a property and include the cost of making the repairs and improvements all rolled in to the loan
In addition, the interest on the FHA 203k loan qualifies for the mortgage interest tax deductions like all other mortgage loans. Therefore, the interest that the borrower pays on this “construction” can be all tax deductible! The FHA 203k loan program improves the real estate market because it requires a property to actually be improved….not just purchased. Because of the improvement requirement with the FHA 203k loan program, real estate values are increased, which helps other homeowners in the same neighborhood, invigorates communities and creates work for contractors and commerce is conducted by the purchasing of goods and services. Simply put, the FHA 203k loan program improves everything associated with it.
3. Who qualifies for an FHA 203k Loan?
Any owner occupant primary residence borrower or qualified non-profit group who qualifies for an FHA loan can also qualify for an FHA 203k Loan. The property must be owner occupied.
4. What types of properties qualify for an FHA 203k Loan?
An FHA 203k Loan can be used for one-to-four unit dwellings, such as Single Family Detached Homes, Duplexes, Triplexes, 4-plexes, Condominiums (certain restrictions apply) and Mixed-Use Residential (certain restrictions apply).
5. How do contractors become a Certified 203k Contractor?
It's easy! Call us at 610-660-4710 and we'll show you our simple process.
6. How do the contractors get paid?
The contractors are paid in a series of draws by the borrower’s lender through escrowed funds. At closing, Allied Mortgage Group places the rehab/improvement funds into an escrow account.
The compensation structure set by HUD does not always permit contractors to receive pre-renovation deposits/start-up funds. Contractors must be financially capable of affording the start-up costs and ongoing expenses with any 203k renovation project. Ample credit lines with suppliers and subs and/or sufficient capital/reserves will be verified as part of the certification process.
FHA 203k Streamline
Contractors receive maximum two (2) payments. After closing on the home, contractors may receive a portion of the job cost (maximum 50%) as a pre-construction payment, subject to lender approval but may take weeks to arrive. Therefore, contractors must be financially capable of affording all the start-up costs and a portion of the ongoing expenses with the 203k project (ample credit lines with suppliers and subs and/or sufficient capital/reserves). Once all the work is complete, the contractors can request final payment of the remaining portion of the job cost according to the proposal that was submitted and approved by the borrower and the lender.
FHA 203k Standard/Full
Contractors receive by default, four (4) draws plus a final for payment. If the rehab exceeds $10,000, more draws can be authorized by approval from the borrower and lender before the loan closes. After closing on the home, there is no upfront money paid to contractors to offset the start-up costs. Therefore, contractors must be financially capable of affording all the start-up costs and a portion of ongoing expenses with the 203k project (ample credit lines with suppliers and subs and/or sufficient capital/reserves). Contractors receive payment after stages of work are completed and inspected. For each draw request on the 203k Standard/Full, an inspection is required.
7. Where is the 203k loan available?
The 203k loan is available nationally.
8. Who do I contact for more information to become certified?
Call our 203k specialists! Call (877) 448- 2745 to speak with a specialist to walk you through the benefits of offering a 203k program to your customers.