Joe Capote – Certified Investment Agent Specialist Expert in Real Estate Investments and Properties

The Federal Housing Administration 203k program is named after section 203k of the National Housing Act, which was amended in 1978. Section 203k essentially provides government insurance for rehabilitation loans.

Oftentimes is nearly impossible to secure a loan for the extensive repairs on a property. If the repairs required are extensive and require hefty amounts of cash to complete, it is difficult if not impossible for the average buyer to close. Also, conventional financing specifically prohibits a buyer from closing on a home that needs repairs. Through the 203k program, and FHA –approved lenders offers loans for purchasing and rehabilitation the properties, and with increased FHA loan limits – a 203k loan up to $729,750 in certain areas of the country — this is no longer an exclusively lower-income loan product.

Eligibility

The following is a list of criteria that must be met in order to qualify for the FHA 203k program. To qualify, a property must:

• Be a one to four unit family dwelling
• Townhouse or condo with less than four units in the building
• Mixed use store front (additional regulation required)
• Be at least one year old (no new construction)
• have the appropriate number of units according to local zoning provisions.
• Be attached to the existing dwelling (if newly constructed)
• Maximum FHA mortgage amount can not exceed 100% of the After Repaired Value (ARV)

 The property cannot be:

• A cooperative unit, but can be mixed use (depending on what percentage is used for commercial purposes), and can be converted into more or fewer dwellings (between one and four)
• An investment property (due to an ongoing moratorium)
• A condo or townhouse with more than 4 units per building.

Benefits and Drawbacks

Benefits

• Helps with properties otherwise difficult to finance
• Funds for rehabilitation included.

Drawbacks

• Time limits
• Plans must be approved by HUD
• Funds in escrow
• Currently unavailable to investors

There is a multi-step process for acquiring a property with a 203k rehabilitation loan. It starts with identifying the property and writing the sales contract, closing, rehabbing and ultimately finishing the work and passing a  HUD inspection and approval.

For more information regarding 203k loans and investment properties, contact me. I’d be more than happy to explain the process in greater detail and help you understand how real estate makes sense for you.

Joe Capote, expert in real estate investments and properties.