FHA 203k Loans


FHA 203k Loan - Regular and Streamline

If you've been passing up buying homes that require cosmetic repairs for lack of funds to fix them up, FHA has a program two programs for you. Both the regular FHA 203k loan and FHA Streamline 203k loan may offer you the opportunity to purchase or refinance and roll in the rehab cost of the repairs.  The Streamlined 203K loan is curently in high demand as it eliminates much of the paperwork and simplifies the process to obtain rehab loan funds.

Most mortgage financing plans provide only permanent financing. That is, the lender will not usually close the loan and release the mortgage proceeds unless the condition and value of the property provide adequate loan security. When rehabilitation is involved, this means that a lender typically requires the improvements to be finished before a long-term mortgage is made.

When a homebuyer wants to purchase a house in need of repair or modernization, the homebuyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods. The FHA 203k rehab loan program was designed to address this situation. The borrower can get just one FHA mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property. To provide funds for the FHA 203k rehabilitation, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work. To minimize the risk to the FHA 203k mortgage lender, the mortgage loan (the maximum allowable amount) is eligible for endorsement by HUD as soon as the FHA 203k mortgage proceeds are disbursed and a rehabilitation escrow account is established. At this point the lender has a fully-insured mortgage loan.