FHA 203k Mortgage : A Construction Loan From The FHA

Karen Lawson
Karen Lawson
The Mortgage Reports Editor
September 16, 2012 - 2 min read

FHA 203k Mortgage LoanFHA 203k Mortgage : Finance Your Fixer-Upper

Buy a new home or upgrade your existing one? It’s an age-old question among homeowners; one that’s influenced by the economy and the housing market. Lately, homeowners have opted to upgrade.

In 2011, more than $115 billion was spent on home upgrades nationwide.

Unfortunately, financing home construction is not as easy as it was 5 years ago. Few banks grant construction loans anymore and home equity lines of credit offer just limited-size credit lines — especially for a purchase. You can pay cash for your improvements, or you can seek a 203k loan via the FHA.

The FHA 203k program is an all-in-one mortgage program for home construction projects. It combines the mortgaged amount with your estimated home repair costs, and bundles them into one. FHA 203k loans make it possible to make home repairs after getting a mortgage. Typical mortgages required repairs to be made prior to getting financed.

FHA 203k loans are especially useful for people buying foreclosed, abandoned, or otherwise run-down homes. There’s no need to finance repairs with cash. The 203k loan provides all the cash that’s needed.


FHA 203k Mortgage Loans: Eligibility Standards

As with all loan programs — via the FHA or otherwise — there are eligibility standards for the 203k; the first and foremost of which is that 203k loans may not exceed local limits. In some areas, such as Loudoun County, Virginia; or Orange County, California, this limit is $729,750.

In other areas, it’s much smaller.

Assuming FHA loan limits are satisfied, the FHA 203(k) mortgage program requires following :

  • Homes must be owner-occupied. No investment properties allowed.
  • Homes must by 1-4 units, and must be at least one year old. No new construction.
  • Construction and renovation must comply with zoning and building codes.
  • If living units will be added to the existing property, they must be attached to the original structure.

Furthermore, if you plan to demolish a structures as part of your 203k loan, you must ensure that the home’s existing foundation remains and that the home will be rebuilt on said existing foundation.

If you’re considering buying a “fixer-upper” or making improvements to your existing home, an FHA 203k loan may meet your needs. Not all banks offer them, however. You may need to shop around. Or, get started with a rate quote.


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