The Streamlined FHA 203k Rehab Loan for Do-It-Yourself Remodelers

The HUD, Housing and Urban Development, introduced the FHA 203k rehab loan to allow borrowers to finance their renovations into their loan amounts.  The option is also available as a refinance for home owners looking to rehab an existing home, while procuring a new loan. The loan provides is for the borrower that wants to make property improvements.

About the Streamlined FHA 203K Rehab Loan

Home improvement loans often have high interest rates, short life cycles and other negative terms. The 203k provides a solution to properties in need of repairs and is a solution for buyers, sellers and lenders. For borrowers purchasing an older home with the intention of making improvements, this loan allows you to finance those improvements up-front.  Often, lenders do not want to extend loans for changes because there is no guarantee of increase in value. Lenders benefit because the loan is insured prior to the changes a borrower will make are complete. The Streamlined FHA 203k Rehab Loan is a new product for those homes needing less extensive repairs. It offers an additional $35,000 at the time of securing a new mortgage. 

Eligibility of the Consumer

There are requirements for both the consumer and the improvements when you apply for a 203k loan. As a consumer, you must meet requirements to prove you are creditworthy. This means you must meet the required gross income, debt ratio, savings criteria and minimum credit history. You do not have to have perfect credit to apply. Typically, however, any past-due payments should be older than 2 years. Bankruptcies or foreclosures should be 2 to 10 years old. The 203k rehab loan is not available to cooperative units or timeshares but is available to single family and units (up to four units). Additionally, the loan may be used to finance rehabilitation on a condominium but may be subject to a smaller per unit maximum.

Eligibility of the Project

The 203k limits the type of improvements a borrower can finance into their loan amount.  FHA stipulates a minimum rehab cost of $5,000 for minor repairs. Many repairs are eligible, as long as the original foundation is in tact. The types of repairs that are allowed under the program can range considerably, but may include:

  • reconstruction on an existing foundation
  • disability accessibility
  • modernizing for increased function or energy efficiency
  • landscape and curb appeal improvements
  • repairs to safety hazards such as fire, mold or other concerns
  • flooring repairs or changes
  • improvements in appearance or facade
  • repairs to plumbing and air or heating systems
  • changes to roofing and water drainage