Eligible Improvements Using FHA 203K Loan

Posted on October 24th, 2012

Eligible Improvements Using FHA 203K Loan

Eligible Improvements Using FHA 203K Loan

If you are not familiar with a FHA 203K loan, it is a type of loan available from the U.S. Federal Housing Administration. The FHA 203K program first became available in 1978 for the purpose of helping individual(s) purchase existing dwellings that were in need of renovations with the hopes that existing neighborhoods benefit.

If you are not familiar with a FHA 203K loan, it is a type of loan available from the U.S. Federal Housing Administration. The FHA 203K program first became available in 1978 for the purpose of helping individual(s) purchase existing dwellings that were in need of renovations with the hopes that existing neighborhoods benefit.

With the FHA 203K loan an individual looking to purchase an existing primary residence that is need of repair need only apply for one loan rather than applying for a loan to purchase the residence and another loan for home improvements. There are obvious benefits of dealing with one loan versus two loans. Other benefits associated with this type of loan include competitive interest rates, smaller down payment, and more protection for your home among others.

There are stipulations associated with the FHA 203K and not only must the individual(s) purchasing the dwelling need to be approved for this type of loan, the dwelling must also be approved. The minimum loan amount associated with this type of loan is $5,000. The maximum amount is not permitted to exceed 100% of the value of the dwelling after it is has been improved.

So what types of dwellings qualify for an FHA 203K loan? The dwelling must be the primary residence of the individual looking to purchase and renovate the property. Though some non-profit groups may be applicable for this type of loan – people looking to flip homes are not eligible. The dwelling cannot be an abandoned construction site; the dwelling must have been completed for at least one year. In order to qualify, the residence must be a one to four dwelling. Condominiums and townhomes qualify for interior renovations only.

There are two types of FHA 203K loans – the Standard 203K and the Streamlined 203K. The differences between these loans are basically the type of work that needs to be done on the dwelling and the monetary amount associated with the renovation. The Standard 203K is required for more complicated projects such as structural changes or any type of renovation that would prohibit living in the dwelling. The Streamlined 203K is for projects that are less complex and projects costing less than $35,000.

When applying for a FHA 203K loan, make sure to work with a lender who is familiar with the process. There is a great deal of paperwork associated with this type of loan and a lender who has little or no experience with the process can result in complications and delays

There are also strict guidelines as to what improvements are eligible an ineligible with either type of FHA 203K loan.

Eligible improvements using a FHA 203K Streamlined loan include:

  • Painting – interior and exterior
  • New siding
  • New roofing, downspouts, and gutters
  • Deck, Patio, and porch – repair, replace, or add
  • Repair of existing sidewalks and driveway if there is an associated safety hazard
  • Grading of site – i.e., for the purpose of improved drainage
  • Remodeling of existing bathroom or addition of bathroom(s)
  • Remodeling of kitchen (including permanently installed kitchen appliances)
  • Finishing of basement and/or waterproofing of basement
  • Finishing of attic
  • Elimination of problems stemming from paint that was lead based
  • HVAC – replacement, upgrading, or repair
  • Plumbing – replacement, upgrading, or repair
  • Electrical system – replacement, upgrading, or repair
  • Repair of damage caused by insect infestation such as termites
  • Improvements that will assist with energy conservation – i.e., window replacement, door replacements, weather stripping, skylights, etc
  • Access improvement to home for someone with disabilities
  • Repair/replacement of well or septic system

Ineligible improvements using a FHA 203K Streamlined loan include:

  • Major remodeling such as the relocating a load-bearing wall
  • Repair of structural damage
  • Luxury item(s) do not qualify – i.e., tennis court, swimming pool, bbq pit, etc.
  • Adding rooms to an existing dwelling – new construction
  • Repairs to foundation
  • Landscaping improvements
  • While there are many stipulations associated with a FHA 203K loan, this program is very beneficial when looking to purchase an existing dwelling as your permanent residence. Many buyers turn away from a dwelling that requires renovation looking instead to find the perfect home which may never be found. Though you are not building a new home, renovating an existing home allows the homeowner to add or improve to the dwelling to make it their dream home.

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