HUD’s FHA 203(k) loans are popular right now considering the many foreclosed homes that may have been abandoned or neglected.
How it works
FHA 203(k) loans allow the cost of certain repairs and improvements to be added to the sales price – giving borrowers an “all in one” home repair loan that’s rolled into their permanent home financing.
For example, your home price is $250,000
The minimum FHA down payment is basically 3.5% of the home purchase price with the cost associated with the improvements added on… For example, let’s say you want to buy a home with a sales price of $250,000, and you would like to do $50,000 of improvements. The minimum down payment would be 3.5% x (250,000 + 50,000) = $10,500.
The maximum loan amount for a purchase using 203k financing is the lesser of:
- The “as-is” value of the property (based on the appraisal) plus the rehab cost, or,
- 110% of the expected “after value” with the rehab.
Seattle area FHA home loan limits
The maximum FHA loan limit in the Seattle-King-County area is $567,500. Check below for additional information about FHA loan limits in other areas.
The program includes one-to-four unit dwellings and FHA approved condos, as long as the homes are owner-occupied.
Most improvements are eligible as long as they add value and are permanently affixed to the foundation. Imrovements can include painting, room additions, kitchen remodeling, roofing, decks, and home appliances, like a refrigerator, washer and dryer. Luxury items (such as swimming pools) and improvements to detached structures are not permitted.
Eligible expenses in the 203k loan
- Materials cost
- Permits, fees, inspections by qualified home inspector
- Up to six months of mortgage payments (while your home is being renovated, you will be making the mortgage payments)
- A contingency reserve (around 15% depending on the project)
A HUD approved consultant
The HUD consultant works with the borrower to help determine what improvements FHA will require (such as energy conservation, local codes, safety, etc.), as well as the improvements the buyer would like to have done. The consultant will develop a list of proposed improvements that will be submitted to the lender for review.
Rehabilitation construction must start within 30 days of closing with all work completed within six months of closing.
FHA 203k rehab loans are not just for home buyers, they can also be used to refinance an existing mortgage.