How the FHA 203k Loan Works and what it can do for you

Feb. 12, 2013 - PRLog -- How the FHA 203k loan works

Basically, a 203k loan is a regular FHA loan with an added component that allows for renovation. All 203k programs allow borrowers to finance the purchase price of the home, and the loan includes extra funds earmarked for closing costs and repairs. Once the home purchase transaction is closed, renovation funds are held in escrow to pay for pre-determined rehab work to be completed by approved contractors.

FHA’s low down payment requirements help borrowers obtain an affordable loan that allows them to rehabilitate a neglected or distressed property. Without a doubt, the major benefit of  203k loans is that the FHA program was specifically created to help borrowers repair, remodel or renovate homes without having a lot of cash in pocket to pay for it all.

Two types of FHA 203k loans
FHA offers two options with the 203k – the FHA 203k Streamline or “Simple K” and the FHA 203k Standard, or “Full K.” Basically, the Streamline K caps costs at $35,000, the work must be completed within six months, and structural improvements are not allowed. The Full 203k is for larger projects requiring more than $35,000 in costs and/or for projects that require structural repairs. The Full K allows nearly any renovation that qualifies as a permanent improvement (with certain restrictions) and allows loan amounts up to FHA’s maximum county loan limits. A HUD consultant is required on all Full K loans and it requires a bit more paperwork.

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