FHA 203k Loan Questions and
FHA 203k Loan Questions and Answers
What are the qualifications to be able to obtain a FHA 203-k loan?
The qualifications requirements are the same as a typical FHA mortgage loan. The only additional item that the
borrower needs is either enough cash reserved to pay for materials and labor until they are reimbursed through
a draw, or a credit card with an adequate available balance. If there is to be a contractor involved, the
contractor may choose to cover these costs.
What is the Interest Rate on a FHA 203K Loan?
The interest rate on a typical FHA 203k mortgage loan is a little higher than a standard FHA or conventional
30/15-year fixed-rate loan.
What is the required Down Payment for a FHA 203-k Loan?
The cash requirements are the same as an FHA loan, 3.5 percent to 5 percent, which is less than a typical
conventional loan. There are a couple of additional fees which pertain to the construction aspects of the FHA
Can I pick my own contractor to do the work?
You may decide on your own contractor, and they should
be brought into the process in the beginning stage of the loan process. Check out the credentials of the
contractor thoroughly, making sure he is knowledgeable in all aspects of rehabilitation work.
Do the repairs have to be done prior to closing on the home?
The home improvements or repairs need not be made before moving into the property, depending on how extensive
the repairs are and whether the house is habitable while the repairs are being made. The home improvement loan
provides the ability to include up to 6 months of mortgage payments in the improvement escrow, should you not
be able to occupy the property and have to pay rent during rehabilitation.
Is the FHA 203k mortgage loan program restricted to single-family dwellings? No. The FHA 203-k mortgage
program can be used for one-to-four unit dwellings. Maximum mortgage limitations are the same as for properties
under Section 203(b).
Can the FHA 203k loan be used to improve a condominium unit? Yes, however, condominium rehabilitation is
subject to the following conditions:
- Owner/occupant and qualified non-profit borrowers only;
- Rehabilitation is limited only to the interior of the unit. Mortgage proceeds are not to be used for the
rehabilitation of exteriors or other areas which are the responsibility of the condominium association, except
for the installation of firewalls in the attic for the unit;
- Only the lesser of five units per condominium association, or 25 percent of the total number of units, can
be undergoing rehabilitation at any one time;
- The maximum mortgage amount cannot exceed 100 percent of after-improved value. After rehabilitation is
complete, the individual buildings within the condominium must not contain more than four units. By law, FHA
203k loans can only be used to rehabilitate units in one-to-four unit structures. However, this does not mean
that the condominium project, as a whole, can only have four units or that all individual structures must be
detached. Example: A project might consist of six buildings each containing four units, for a total of 24 units
in the project and, thus, be eligible for an FHA 203k loan. Likewise, a project could contain a row of more
than four attached townhouses and be eligible for a FHA 203k loan because HUD considers each townhouse as one
structure, provided each unit is separated by a 1 1/2 hour firewall (from foundation up to the roof). Similar
to a project with a condominium unit with a mortgage insured under Section 234(c) of the National Housing Act,
the condominium project must be approved by HUD prior to the closing of any individual mortgages on the
Can a FHA 203k loan be used to convert a one family dwelling to a two-, three-, or four-family dwelling (or
Can a FHA 203k loan be used to move an existing house onto another site?
Yes, however, release of loan proceeds for the existing structure on the non-mortgaged property is not allowed
until the new foundation has been properly inspected and the dwelling has been properly placed and secured to
the new foundation. At closing, funds would be released to purchase the site and the rest of the mortgage
proceeds would be placed in the Rehabilitation Escrow Account. The borrower would have the site prepared to
accept the dwelling. The first release would be based on the improvements made to the site, including the
installation of the existing structure on the new foundation.