The Section 203(k) program is a home rehabilitation and repair program, designed to revitalize neighborhoods and spur homeownership. It is a program that permits homebuyers to finance up to an additional $35,000 into their mortgage to improve or upgrade their home before move-in. With this program, the homebuyers do not have to find separate financing for construction, plus construction begins immediately after loan closing. It offers a solution that helps both borrowers and lenders, insuring a single, long term, fixed or adjustable rate loan that covers both the acquisition and rehabilitation of a property. It helps save borrower's time and money and they also protect the lender by allowing them to have the loan insured even before the condition and value of the property may offer adequate security.
Section 203(k) insures mortgages covering the refinancing or purchase and rehabilitation of a home that is at least one year old. Some portion of the loan proceeds is used to pay the seller and in the case of refinancing, the portion is used to pay off the existing mortgage. The remaining funds are placed in an escrow account and released when the rehabilitation is completed. The cost of the rehabilitation must be at least $5,000, but the total value of the property must still fall within the FHA mortgage limit for the area. The value of the property is determined by either the value of the property before rehabilitation plus the cost of rehabilitation, or 110 percent of the appraised value of the property after rehabilitation, whichever is lower.
•1. Elimination of health and safety hazards
•2. Structural alterations and reconstruction
•3. Modernization and improvements to the home's function
•4. Changes that improve appearance and eliminate obsolescence for aesthetic appeal
•5. Air conditioning or replacement
•6. Reconditioning or replacing plumbing; installing a well and/or septic system
•7. Adding or replacing roofing, gutters, and downspouts
•8. Adding or replacing floors and/or floor treatments
•9. Major landscape work and site improvements
•10. Enhancing accessibility for a disabled person
•11. Making energy conservation improvements