FHA 203k Mortgages & Multi-Unit Family Properties

Posted on November 1st, 2012

FHA 203k Mortgages & Multi-Unit Family Properties

FHA 203k Mortgages & Multi-Unit Family Properties

If you are not familiar with the FHA 203k loan program, this program was designed to help finance the repair and the rehabilitation of dwellings. This program is administered by the Federal Housing Administration (FHA).

Many times potential buyers of dwellings are hesitant or refuse to purchase a dwelling need of repair as their primary residence – instead making the decision to build a new home. The practice does create new neighborhoods but does not help with existing neighborhoods that are looking for revitalization. The government established the FHA 203k loan program in 1978 in an effort to make it easier for borrows to purchase dwellings that were classified as distressed.

Property eligible for a 203k mortgage is not restricted to a single family dwelling; it can also be a multi-unit family property (a one to four unit building). It may also be a townhome or condominium unit for only interior improvements. The stipulation must be that the property is the primary residence of the buyer. However, this program can be used by local governments and eligible non-profits as well. The dwelling must also be at least one year old to qualify.

Many people refer to this type of loan as a "fixer-upper" loan because it allows for renovations. A benefit if applying for this type is the reduction in paperwork and cost because you are applying for one loan rather than the traditional two types of loan – a home loan and a home improvement loan.

There are two different types of FHA 203k loans – the Standard 203k and the Streamlined 203k. Generally the Standard 203k is for larger scale rehabilitation projects while the Streamline 203k is for smaller rehabilitation projects. Both types of loans have a very strict list of items that are considered eligible and ineligible. Nor does either type of loan allow for any item that is considered a luxury item (i.e., swimming pool, tennis court, etc.). The minimum amount of a qualifying 203k mortgage is $5,000.

There are two different types of FHA 203k loans – the Standard 203k and the Streamlined 203k. Generally the Standard 203k is for larger scale rehabilitation projects while the Streamline 203k is for smaller rehabilitation projects. Both types of loans have a very strict list of items that are considered eligible and ineligible. Nor does either type of loan allow for any item that is considered a luxury item (i.e., swimming pool, tennis court, etc.). The minimum amount of a qualifying 203k mortgage is $5,000.

The Streamlined 203k is the newer of the type types of loans and is for less complicated renovations. Renovations that do not require structural repair and renovation does not exceed $35,000. Some examples of items that are eligible for repairs under the Streamlined 203k loan include: replacement, repair, or upgrade of HVAC systems, plumbing system, electrical system, winterization, and minor remodeling of kitchen and/or baths among others.

There are also strict guidelines on how long the renovation work may take – the work must start within 30 days after the loan has closed and must be completed within a designated timeframe not to exceed 6 months – the timeframe completion is set by the lender.

When applying for and being accepted for a FHA 203k mortgage, not only the individual purchasing the property must meet the guidelines set by the FHA but the dwelling must meet the guidelines set by the FHA. In addition to a standard list of qualifications set by the FHA, there are also specific qualifications that vary based on location.

Also, when applying for a 203k mortgage there is an enormous amount of paperwork associated with the process. To ensure no delays it is best to select a lender who deals with this type of mortgage on a regular basis. Also be prepared to be patient, the waiting time for closing can be quite lengthy – instead of the usual 30 to 45 days to close, this type of mortgage tends to take more like 60 to 90 days to close.

When looking for a new home for yourself and/or your family, consider purchasing an existing dwelling and take advantage of the 203k mortgage program that is currently being offered by the FHA. The bottom line for the potential home buyer is by taking advantage of this type of 203k mortgage program allows for an individual to purchase a primary dwelling that may otherwise be considered out of their price range.

Share this Post: