FHA 203K Rehabilitation Loans: How To Qualify

Rehabilitation loans are loans designed to help the homeowners rehab, repair and improve their homes. FNA 203K loans are the rehabilitation loans that are issued by the Federal Housing Authority, a branch of US Department of Housing and Urban Development (commonly abbreviated as HUD). These loans are primarily meant for foreclosed homes, distressed properties and homes that are in pressing need of upgrades and improvements. They are offered as part of HUD's mission to increase home ownership and give Americans more affordable housing options.

Eligible Properties

Not all homes may be repaired using FNA 203K Rehabilitation loans. In order to qualify, a home must fall under the following criteria:

They must be one of the following types of dwellings:

Family homes - Homes that serve as residence for at least one family. More than one family can live there, but the total number of resident families must be no greater than four.

Mixed-use buildings - Buildings made up of residential, commercial and office spaces. In order to qualify, the building must be largely residential (see HUD website for specific percentages), and the loan may only be used to rehabilitate residential spaces. Furthermore, the commercial activities conducted within the building must not threaten the safety and health of its residents.

Individual condominium units - So long as the funds are used for the interior or this particular unit and no more the 25 percent of the building units are repaired at the time.

Homes that have been moved from another location - Such home can only qualify for the loan once the new foundation is properly inspected and the home is properly placed and secured.

Demolished homes - If the foundation is intact, the loan can be used to rebuild it from the ground up.

The homes must have been built no earlier than a year prior to the application date.

Any newer additions must be connected to the building

The homes must fit all of the area's zoning requirements.

Required Alternations

In taking out the loan, the borrower agrees to undertake the following repairs to make his or her property safer and more energy-efficient. They include:

Increasing thermal efficiency - The borrowers must take following steps must be taken to keep the heat (or cold) from escaping out of the house:

  • Weatherstrip all doors and windows
  • Seal all openings, cracks and joints in the building's envelope
  • Insulate all openings in exterior walls and ceilings
  • Make sure attic and crawlspaces have adequate ventilation.

Improving heating, ventilation and air conditioning systems - All pipes and ducts must be insulated whenever they run through unconditioned spaces. The systems must be sized to be no more then fifteen percent oversized for the critical design.

Adding and replacing smoke detectors as needed - Each sleeping area must have at least one, and it must be functional.

Optional Alternations

In addition to the above-mentioned required repairs, 203K Rehabilitation Loans can be used in any of the following ways:

Renovation - This can involve everything from repainting the interior to adding a new deck. It can also involve improving health, safety and energy conservation beyond the mandates covered above.

Complete Rehabilitation - This involves repairing the building that suffered from deterioration and neglect.  The owner can make some fairly fundamental changes, but the foundation must remain intact.

Useful tips

There are a couple of ways homeowners can improve their chances of getting a 203K Rehabilitation Loans. This includes:

  •   Rehabilitating a home in a low-income area or gentrifying low-income area.
  •   Agreeing to rent the home out for affordable rates once the rehabilitation is complete.
  •   Rehabilitating a historically or culturally significant building.
  •   Involving non-profit organizations and local and/or state governments



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