Facts about the 203(K) program

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How does the 203K work?

The program is used to finance the rehabilitation or improvement of an existing one to four unit residential structure in the following ways:
A.      Buy a property and fix it up. You may buy a one to four unit dwelling that requires at least $5,000 of work to be done.
B.      Refinance a property you already own and include in the new loan additional financing for at least $5,000 of fix up costs. In either case, the new loan is based on the future value of the property. The future value is determined by an approved appraiser based on the work to be done. The loan is subject to all the same parameters as FHA loans. Following are the most important:

Loan to Value: While you are not able to borrow all of the purchase price and rehabilitation costs, the 203K will finance most of it. Home buyer and Non profits can finance up to approximately 95% of those amounts. Compare that to other loan programs and yo will be impressed!

FHA Loan Limits: The loan amounts are restricted by federal guidelines and are meant to insure that the program is used primarily for affordable housing. However, there are no income, price or location restrictions.

Loan Qualifying: The 203K mortgage enjoys all the easy qualifying attributes of other FHA programs. Here are some of the distinguishing characteristics:
Debt Ratios up to 41%
Non occupying co-borrowers can help qualify
All or part of the down payment can be a gift
No required cash reserves
Credit does not need to be impeccable
No sales price, location or income limitations
Very low down payment requirements
Rental income from other properties counted at 90%
Rent from other units of 2-4 building can help you qualify

The 203K Mortgage provides for many possibilities. Buyers who will not have anyone living in the building during the renovation period may add a mortgage payment reserve into the loan, thus eliminating the need to make payments on two houses at the same time. All 203K mortgages are assumable. Both fixed and adjustable rate loans are available at reasonable rates. All are fully amortized over thirty years and can be prepaid at any time without penalty. To facilitate the purchase of low cost "fixer" homes with the least amount of required cash, the loan allows the seller to pay all non-recurring and prepaid closing costs up to 6% of the price of the home. Further, some of the normal closing costs are actually financed in the loan itself. And we do not require that the buyer have any cash reserve when the loan closes!

Eligible Improvements: While the 203K mortgage provides for flexibility in improving a property, it does require that the condition of the home be brought up to current standards. A termite report is required and the loan will provide for the work cited as necessary by the termite company. In general, health and safety items, code violations, structural problems, termite and related deficiencies and roof problems will all need to be addressed through this loan. While the borrowers must correct outstanding health and safety problems, they are also free to choose from a variety of improvements which can be included in the financing. He is only a partial list:
Remodeled kitchens (including built-in appliances)
Remodeled baths
interior and exterior painting
New siding/stucco
Room additions
New garage or carport
Repair or replacement of heating, plumbing and electrical systems
Flooring of all types
Energy conservation measures
New doors and windows
New roof and gutters
Handicapped accessibility
Adding additional units.
And many more!!

Luxury items are not allowed. For instance, you can't use the 203K to add a swimming pool or an outdoor jacuzzi.

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