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Understanding FHA-part II; Section 203k loans

By
Mortgage and Lending MLS# 279272

After publishing an article last week titled, "Understanding FHA," I received quite a few comments regarding FHA - Rehab loans. Here is a summary of more detailed information on the Rehab loan.

Section 203k loans are a key part of the FHA's efforts to rehab and repair owner occupied, one to four unit properties. I make this distinction because the program includes condos, "mixed use" residential and other qualified properties. It can also accommodate purchases of existing properties as well as refinances.

A key difference between a 203k loan and most mortgage programs is the method of financing. Traditional mortgages require that a home equity line of credit or similar financing be arranged to pay for the rehab after the initial home purchase and mortgage were completed. With a 203k loan, one loan covers both the purchase and the rehab of the property by basing the mortgage on the projected value of the property. FHA allows for fixed 15 or 30 year loans as well as 1 year arms.

The 203k has two primary programs, one for "minor" repairs, a second for "major" repairs. The principle difference between the two, "major" repairs require architectural plans or structural repairs, while "minor" repairs can be completed without plans requiring review or approval. Minor repairs can total up to $35,000 in rehab costs and must be completed within six moths of purchase.

As with any loan program, there are a number of stipulations that need to be met. First, the property has to qualify as well as the end value of the property, including the rehab. That is why it is important to choose the right FHA approved lender. Not all FHA approved lenders service 203k loans.

Marlene Pellegrini
Norwich, CT

Thank you Loren.  This is great information.

Nov 04, 2008 02:28 PM
Mike Wong
Keller Williams Realty Southwest - Sugar Land, TX
Realtor: Commercial, Residential, Leasing, Invest

Thanks for the details Loren.

Nov 04, 2008 02:58 PM
DJ Swanepoel
Real Estate Wiki - Los Angeles, CA

Excellently detailed article Loren, thank you!

Nov 04, 2008 02:59 PM
Jon Boyd
Home Buyer's Agent of Ann Arbor - Ann Arbor, MI
Ann Arbor Real Estate Buyers Agent

Thanks for the post Loren.

How long does it typically take you to do a 203K from contract to close?

I understand they take more effort that tradditional FHA, but we just had an FHA go from contract-to-closing in eight days! (A top notch lender with a well qualified buyer.)

Dec 05, 2008 05:19 AM
Loren Johnson
White Bear Lake, MN
CMPS

Thanks for the nice comments.....

Jon, consider yourself a very lucky person! I've had great service on those loans, but I haven't had any move quicker than 16 days from start-t0-finish. I'm sure the fact your buyer was Well-qualified helped! Continued success to you!

Dec 09, 2008 03:49 AM
Anonymous
MikeY

Glad to see 203k information being desiminated, good job. I always tell our clients that the can close a 203k as fast as a 203b but I haven't heard of one closing in 8 days before. That's terrific. As a consultant we will never be the cause of it taking longer than the 203b. Keep up the good work.

Mar 16, 2009 07:56 AM
#6
Anonymous
Sonja Morrison

I'm still waiting after 3 months...ready to walk away. frustrating!!!

Nov 10, 2010 04:52 AM
#7