Use The 203k Rehab Program To Fit A Property With Potential To Your Vision

Dated: October 9 2016

Views: 264

Using the Federal Housing Administration (FHA) 203(k) Rehab Program, owner/occupant home buyers and homeowners with the patience and vision may find a diamond in the rough that with merely a little TLC can be the dream home.  As an added bonus, under the the 203(k) Rehab Program, owner/occupant home buyers and homeowners may put as little as 3.5 % down for the loan.

Section 203(k) insurance enables home buyers and homeowners to finance both the purchase (or refinancing) of a house and the cost of its rehabilitation through a single mortgage or to finance the rehabilitation of their existing home.  FHA also provides home buyers and homeowners the Limited 203(k) Program for less extensive repairs/improvements financed up to $35,000 into the mortgage to repair, improve, or upgrade their home.  The cost of the rehabilitation under the 203(k) Program must be at least $5,000 and the total value of the property must fall within the FHA mortgage limit for the area (e.g., high cost areas, such as Washington, D.C. and around the DMV, the limit is $625,500 for a single owner/occupant residential unit). 

For example, the steps to using the 203(k) Rehab Program when a owner/occupant home buyer purchases a home may include:  

1.   Pre-Qualify for a loan in an amount that includes anticipated rehabilitation costs 

2.   Identify a property to be rehabilitated. 

3.   Make an offer to purchase the property that factors in the cost of the rehab work and contingent on an appraisal

4.   Enter a sales contract with the Seller (the Seller accepts the offer contingent on an appraisal) 

5.   Conduct an appraisal to determine the property’s value either factoring in the cost of the rehab work, or 110 percent of the appraised value after the rehabilitation, whichever is less. 

6.   Prepare and submit a project plan for the rehabilitation for approval by the lender 

7.   Lender approves project and loan (e.g., 45 - 60 days) 

8.   Close on the property 

9.   Start rehabilitation work within 30 days of the loan agreement closing 

10. Complete rehabilitation work within a time frame (not to exceed six months) agreed on in the settlement papers.  

With the project completed, live in your home in comfort having rehabilitated the property according to your vision!

The 203(k) Rehab Program allows for virtual reconstruction of a home that has been demolished or will be razed as part of rehabilitation, provided that the existing foundation system remains in place.  The types of improvements that borrowers may make using Section 203(k) financing include: 

•  structural alterations and reconstruction 

•  modernization and improvements to the home's function 

•  elimination of health and safety hazards 

•  changes that improve appearance and eliminate obsolescence 

•  reconditioning or replacing plumbing; installing a well and/or septic system 

•  adding or replacing roofing, gutters, and downspouts 

•  adding or replacing floors and/or floor treatments 

•  major landscape work and site improvements 

•  enhancing accessibility for a disabled person 

•  making energy conservation improvements 

The U.S. Department of Housing and Urban Development (HUD) requires that properties financed under the 203(k) Rehab Program meet certain basic energy efficiency and structural standards.  For housing rehabilitation activities that do not also require buying or refinancing the property, borrowers may also consider HUD's Title I Property Improvement Loan program.

Please contact us at the Mark Quinichett group to assist you with your real estate needs.

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Andrea Washington

In addition to being a licensed real estate salesperson in MD and DC, Andrea is a Credit Repair Agent, certified Notary Signing Agent (underwriter appointed) and Investor. +Get connected to resour....

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