Using a FHA 203k Loan to Purchase a Foreclosure

Real Estate Sales Representative with Coldwell Banker Graham & Assoc.

This is an excerpt from a book I am writing called "Buyers Guide to Foreclosures"  (generic title but to the point).

Financing can be a major hurdle for some buyers wanting to purchase a foreclosure because of the condition of the home, which may keep it from qualifying for conventional or traditional FHA loans. The 203k is a great option. I encourage all agents to familiarize themselves with this loan program.

There are two types of FHA 203k loans. There is the Streamline and the Standard.

The Streamlined is used for homes that need minor repairs such as replacing a roof or flooring, interior and exterior painting and HVAC system replacement or upgrades (doesn’t really sound like minor repairs). This loan has a maximum rehab limit of $35000 with no minimum. Therefore, you can make repairs that cost as much as $35000 or $5 - but you really wouldn’t need the loan if you only plan to make $5 worth of repairs. The rehab funds are placed in an escrow account with half dispersed to the contractor up front and the remaining funds released after the repairs are completed and inspected.

The Standard 203k is for homes that need major repairs such as structural and/or foundation repairs, adding a room to the home and major landscaping improvements. With this loan, the total rehab cost must be greater than $35000. There is a $5000 minimum of eligible repairs or improvements required, such as structural repairs, termite damage, etc. After the initial $5000 is met, the remainder can be used for cosmetic repairs and upgrades. Again, rehab funds are placed in escrow and are released as repairs are completed and inspected. The Standard also allows up to six months of your mortgage payments to be included in the rehab costs if the Housing and Urban Development (HUD) consultant determines that you must be displaced during the repairs.

The 203k loans can be used to purchase a 1 to 4 unit residence. To qualify the borrower must occupy the home as their primary residence. Maximum loan limits are based on property type and location. Also, luxury items such as installation of a swimming pool, hot tub or barbecue pit are not eligible.

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Bo Smith AKA

Good article from Nick and an agent that has experience in witnessing and working with contractos associated with this form of financing, FHA 203k.  Keep up the good work Nick and lets educate more agents on this wonderful program that moves these foreclosures and turns these houses into homes.  And oh, yes, thanks for telling my story as the lender that originates these FHA 203k

Jan 09, 2012 10:30 PM #1
Nick Miller
Coldwell Banker Graham & Assoc. - Jackson, MS

I forgot to mention, Bo Smith with Cornerstone Lending is my go to lender for FHA 203k loans.

Jan 09, 2012 11:09 PM #2
HUD 203K Consultant

Nick, you need to make your information accurate.  The Streamline is simply for work under the 35K limit and the full 203K for work over the 35K limit.  It does not matter what the scope of work is. You also should mention that the buyer needs to engage a HUD 203K consultant ASAP and have them work with the buyers contractor to set the project budget and scope up front.   All 203K loan scope-of-work must meet local building standards and HUD guidelines.   You can use a streamline for structural repairs but be aware that local codes will often require upgrades of all mechanical systems - check with your local jurisdiction - if major  repairs are initiated.  You don't want to trigger the installation of sprinklers for example in a 4 - unit building without planning for it up front.   

Jan 10, 2012 08:01 AM #3
Vito Simone
203k Services - Baltimore, MD

Nick, a good primer on 203k Streamline vs Full 203k. There are some limitations of the Streamline worth pinting out though:

1. Actual repairs end up being under about $30,000 by the time you add back in a Contingency and a few lender fees.

2. No Structural repairs are permitted with a Streamline and many lenders will not allow mold remediation as part of a Streamline so be sure and check wth Bo (Bo Knows).

3. Money does not flow so easy on a Streamline. People often forget that the contractor DOES get a 50% deposit upfront. BUT, they do not get any more money until they are done, inspected and payment processed. Sometimes for "small" 30k jobs, this could actually stress a smaller contractor to lay out so much money.

I have listed more details at you might use as a resource.

Good luck!

Viito Simone
HUD 203k Consultant

Jan 10, 2012 08:54 AM #4
Garrett Feis

Good job Nick explaining the difference.  Not sure where HUD Consultant got his info but, Vito is on the money with his ansewer. 


Garrett Feis

Jan 10, 2012 12:49 PM #5
Kevin the 203k loan guy

With all these new lender laws it's also worth mentioning that the HUD Consultant must be in contact with the Loan Originator BEFORE they go out to the property and money changes handsbetween the homebuyer and Consultant.  The L.O. needs to know the fee schedule for the Consultant so that these fees can be included on the loan cost worksheet and or the Good Faith Estimate.  If the homebuyer pays the Consultant prior to the L.O. disclosing the loan fees and prior to the waiting period expiring, it limits the homebuyers loan choices.  They can only do borrower paid financing which means  the borrower has to pay all loan fees out of pocket.  So if I'm arranging a loan where I'm bumping the interest to pay (lender paid financing) for a large portion of the loan fees for the homebuyer due to their lack of funds, I can't do that loan for them anymore and it can kill the deal.  It's a case now where Consultants, Realtors and L.O.'s have to work with each other early in the game more than ever before and our rules are starting to crossover whether we like it or not.

Jan 10, 2012 02:28 PM #6

Nice job nick.Even layman also understand about 203k loan information.Keep updating.

If you know about real estate loans visit : 



Mar 15, 2012 05:47 AM #7
Mike Young, covering California & most other states - Fairfield, CA
FHA 203k Consultant 707-812-7668

You have some heavy weights weighing in on your comments. Interesting. Most lenders want to see a minumum of $2000 and some $5000 for the contruction even on a Streamlined k. 

There are many Realtors that will tell you to stay away from the 203k and when quized they haven't ever done one, but they come off as an authority on the subject. Garret and Vito know what they are talking about for sure. 

The key is NO ONE is an island. The 203k community is a 'Team' of experts here to assist you and others when you need us.

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