This Old House: 203K Loan Program Overview

Posted on October 16th, 2012

This Old House: 203K Loan Program Overview

This Old House: 203K Loan Program Overview

When one begins to describe anything involved in government programs it begins to sound like a verse from "Old Macdonald Had a Farm" (E-I-E-I-O). Every department seems to have under-departments. Each has its own acronym. Alphabet soup has nothing on trying to navigate the murky waters of government bureaucracy. So, let's take a plunge into the topic of housing. Federal Housing Administration (FHA) is a sub-department of the Department of Housing and Urban Development (HUD). Still with me? The FHA regulates the 203K program. A program overview of 203K loan shows that it helps people rehab their houses by offering them loans at attractive rates.

You might say 203K is really aiming to clean up neighborhoods that were once attractive but have fallen on hard times. It helps homeowners improve their living conditions and thus contributes to the beautification of communities improving real estate values. HUD is committed to helping people become homeowners and revitalizing deteriorating urban areas. It should come as little surprise then that HUD has a strong desire to see the 203K program prosper.

Now, you are probably wondering: Is this where my hard-earned tax dollars are going? Am I paying to fix up someone else's house when I can barely afford to maintain my own? Fair questions! Where does the funding for 203K come from? Loan money comes from a partnership of individual lenders who had invested money in home improvement projects hoping to receive higher interest on their money than they would earn in the bank. The wish for a good return on their investment is coupled with a desire to be part of urban renewal. They have formed partnerships with state and local housing agencies and nonprofit organizations to provide loans to those who qualify.

Who is eligible to apply for 203K loans? If you own a one to four unit housing development that needs some tender loving care, you can apply for 203K funds. You could also use 203K loan money to buy a home that needs fixing up. You can buy a house that needs repair and move it to another location where it will be placed on a new foundation. You can use a 203K loan to set up refinancing on a property that needs repair. So basically the house for which you are seeking a loan must need repair. That's what the 203K loan is earmarked for. If you need to move it that is not part of 203K loan's purpose. You must find other funding for the move.

203K money must be used to rehab the interior of a single or multiple house or condominium. The money is not intended for exterior improvements. It is also not intended to finance improvements on structures larger than four-family developments. However, if the housing unit is a multiple family unit like an apartment building, you can apply for a loan to fix up four or fewer of the single-family units.

If you have a large house and you want to convert your larger building into four or fewer individual units, you can apply for 203K money for this project.

How much money can you apply for? What you ask for cannot be more than the estimated value of the housing unit after it is fixed up.

So now that you have successfully applied, met the criterion for acceptance for a 203K loan, been inspected and approved for the loan, what can you spend it on? You can make structural changes like moving walls, or tearing down or rebuilding a chimney or replacing steps with ramps. You can add bathrooms or windows or skylights. You can finish formerly unoccupied spaces like attics or basements. You are allowed to update places like kitchens, bathrooms, dens or recreation rooms. This includes replacement of cupboards, and built-in appliances such as built-in ovens, dishwashers, or microwaves. You can repair damage created by rodents or termites or get rid of infestations of bees or wasps or other insects or pests such as mice or bats. The 203K loan can also be used to reconcile health and/or safety issues such as: unsteady stair railings; lead-based paint surfaces; unsafe insulation or wiring; unsafe water systems.

203K loans have been a boon to those who need to make home repairs to make their houses move habitable. It has also been an advantage to communities where they are struggling with urban renewal. As a partnership of individual investors, non-profit organizations as well as local and state housing authorities 203 K loans are a winning situation for all stakeholders.

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