What is FHA?
The United States’ Federal Housing Administration (FHA) is a government agency that was created in 1934, following the Great Depression. Today, it falls under the authority of the Department of Housing and Urban Development (HUD). It is the only government agency that generates its own operating budget. It is credited with helping make the people of the United States one of the best-housed populations in the world. The purpose of the FHA is to oversee a variety of insurance programs for single-family mortgages. Loans are provided by HUD-approved lending institutions and insured by the FHA. Buyers must have a satisfactory credit rating and also provide a down payment.
203(k) Loans: All-in-one Rehab Plus Mortgage Financing
The FHA 203k mortgage is a special loan program designed to make it easy for a person to purchase a home in need of repair or to finance necessary repairs to an existing home, rolling the cost of the repairs and mortgage together into one loan. These FHA 203(k) rehab loans are HUD’s primary loan product for the repair and rehabilitation of single-family dwellings. It is intended for the benefit of individual homeowners, not investors or commercial builders. Often, the required down payment on these FHA 203(k) loan is as low as 3.5 percent, making them attractive to lower and moderate-income families. Non-profits and local government entities are permitted to take part in the program as borrowers, but the resulting dwellings must be used as a primary, private residence.
203k Loan Requirements
While the FHA 203k Loans are essentially intended as home improvement loans, they are also a fundamental tool for local neighborhood and community revitalization efforts across the country. In fact, one of the key goals of both HUD and the FHA is to expand homeownership opportunities as well as to prevent homes in need of repair from being abandoned. Repairs, improvements, and general rehabilitation to existing dwellings can be realized through 203(k) renovation loans in one of the following ways:
- A residence, as well as the land on which it sits, may be purchased and rehabilitated. One-to-four family dwellings are eligible, such as townhomes, as well as detached, single-family houses. One-to-four condominium units qualify for interior repairs and improvements only.
- An existing dwelling or a modular unit located on one site is permitted to be moved to another location, however, a new foundation must be provided and properly inspected, and the dwelling properly secured to the foundation.
In addition, FHA 203(k) loans cover a diverse range of improvements, such as:
- Installation of energy-efficient doors and windows
- Landscape work and improvements to enhance value
- Adding accessibility for a disabled person
- Porch, deck, and patio additions
- Garages and carports
- Extra room additions (bedrooms, living rooms, bathrooms)
- Lead paint removal
- Improvements to plumbing, electrical wiring, heating and air conditioning
- Kitchen and bathroom remodels
- The repair of structural problems, termite damage, and chimney repairs
- The addition of a septic system
- Flooring and floor treatment
Other types of improvements may also be eligible. Certain restrictions apply for 203k loans and they must meet certain energy efficiency and/or structural standards set forth by HUD in order to qualify.