Section 203 (k) is a single family mortgage insurance program administered by the Department of Housing and Urban Developement (HUD). This program operates through FHA approved lending institutions which submit applications to have the property appraised and have the buyer's credit approved. These lenders fund the mortgage loans which the department insures.
Section 203 (k) insurance enables home buyers and home owners to finance both the purchase (or refinancing) of a house and the cost of its rehabilitation through a single mortgage-or to finance the rehabilitation of their existing homes.
203(k) encourages lenders to make mortgage credit available to borrowers who would not qualify for conventional loans on affordable terms (such as first-time homebuyers) and to residents of disadvantaged neighborhoods (where mortgages are hard to get.)
How It Works203(k) insures covering the purchase or refinancing and rehabilitation of a home (condominium that meets guidelines) that is at least a year old. A portion of the loan is used to pay the seller--or if refinancing to pay off the existing mortgage--and the remaining funds are placed in an escrow account and released as rehabilitation is completed. The total value of the property (including rehab costs) must not exceed FHA mortgage limit. FHA Mortgage Limits For Your Area.
Who Is Eligible?
People who can make monthly mortgage payments. (Cooperative units are not available)
Where Can I Find A 203(k) Lender?
FHA-approved lending institutions--which includes many banks, saving and loan associations, and mortgage companies--can make loans covered by 203(k) insurance.
Fees
Downpayments can be as low as 3% however; closing costs and insurance premiums may be financed, reducing the upfront costs. Lenders may charge additional fees to cover preparation of the archetectural plan and higher appraisal fees.
What Projects Are Covered?
- Structural alterations and reconstructions
- Modernization and improvements to the home's function
- Elimination of health and safety hazards
- Changes that improve appearance and eliminate obsolescence
- Reconditioning or replacing plumbing, installing a well or septic system
- Adding or replacing floors/ and or floor treatments
- Major landscape work and site improvements
- Enhancing accessibilty for a disabled person
- Making energy conservation improvements
Homes that have been demolished or will be razed as part of rehabilitation are also eligible, providing the existing foundation system remains in place. Residential portions of property that has non residential uses are also eligible, as well as converting any size property to a one-four unit structure. Luxury items and improvements that do not become a permanent part of the property are not eligible. For more info on the 203(k) program please see Hud's Rehab a Home with Hud's 203(k) brochure.
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