The 203K is, first of all, a loan with which to buy residential real estate in which some remodeling and/or rehabilitation is necessary or desired. Sounds simple and not particularly revolutionary - but read on! The major difference between the 203K and an ordinary loan is that it is based on Future Value of the property after it is fixed up. The 203K provides financing for both the purchase of the property and also the fix up costs: remodeling, termite work, restoration, foundations, etc. 

In the past, home buyers who wished to purchase a house with the intent of fixing it up had to overcome some very large obstacles. First, they had to locate the home to buy. Then they had to convince a lender that the home was worthy of financing in its present state and that they had the resources to fix it. If the lender was at all willing to lend on the property, a very large down payment was required - and the buyers had to fund the fix up costs out of their own funds. Unfortunately, few but the affluent home buyers and investors could overcome these obstacles. The result: the best real estate deals were being picked up at bargain prices by the wealthiest investors. For these reasons, some of the very best priced real estate was unavailable to the average home buyer. As a result, Realtors were rarely interested in trying to sell lower priced properties which required rehabilitation. Even if they could convince someone of the intrinsic value of a distressed property, they knew that it was highly improbable that a new home buyer would be able to get a loan to buy it. In 1961, a small provision of a Federal housing law opened the door to a new world of financing low cost "fixer" real estate. This statute created the 203K financing program. Let's look at how this exciting financing program actually works.