Rebuild this home with a FHA 203(k)

Mortgage and Lending with NMLS 291249

Rebuild this home with a Rebuild with 203kFHA 203(k)

One loan finances the purchase and improvements.  The FHA 203k includes the cost of rebuild, rehabilitation or home improvement in a purchase or refinance loan.  .

The 203(k) is a great marketing tool for real estate agents that provides added value. 

While it is a great tool to rehabilitate trashed REOs it also can be used to upgrade homes. 

The primary criteria are: the improvement is a permanent part of the real estate and the improved home's value must be comparable to similar homes in the neighborhood.

There are many uses for the 203(k)

  • Rebuild
  • Rehabilitate
  • Remodel kitchens and bathrooms or...
  • Add Rooms
  • Move homes to new lots. •
    • 203k cannot be funded until home is permanently secured to new foundation.
  • Start with an existing bare foundation and build a new home.

Underwriting guidelines for borrower are the same a regular FHA

  • Must be owner occupied
  • There are no borrower income limits.
  • No purchase price restrictions
  • Subject to local FHA loan limits.
  • Borrower's minimum investment is 3.5%

FHA 203k are not overly complicated. 

The final loan amount will be 96.50% of the purchase price and cost of repairs plus a contingency pad

The purchase contract is written based upon the purchase price.  I suggest, to avoid seller confusion, the purchase offer loan amount to be 96.50% of the purchase price with a notation the loan amount will be increased based upon repair costs.

Once the offer is accepted repair bids are prepared by licensed and bonded contractors.  If the bids are over $35,000 a FHA 203k inspector must review the property and bids; below $35,000 no FHA inspector is required. 

  • Purchase price plus construction costs CANNOT exceed the value of comparable homes in the area.
  • The contractor must understand the bid must be accurate because there will not be any additional money available. 

After the construction bid is accepted, it along with the purchase contract is sent to the FHA appraiser.

The time to complete a FHA 203k is dependent on the time required to prepare the construction bid.  Once the construction bid is accepted the time to close is the same as a regular FHA loan.


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Tim Fry - Annapolis, MD

The picture illustrates an extreme and atypical case, but the FHA 203(K) is a fantastic opportunity. Great post.

Apr 19, 2010 01:45 AM #1
Ruth Vogt
Fairway Independent Mortgage, LLS. Equal Housing Opportunity. Regulated by the Division of Real Estate. - Colorado Springs, CO
719-592-0855 Apply 24/7

Truly Bill? Could this "property" really qualify for a 203k? Or are you jesting?

Apr 19, 2010 05:39 AM #2
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Bill Ladewig

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