What Are FHA 203K Rehab Loans?

FNA 203K rehab loans are loans designed to help property owners refurbish, repair or improve their homes. The program is administered and financed by Federal Housing Authority, a branch of US Department of Housing and Urban Development (HUD), and the loans were launched as part of the federal program to increase home ownership and provide more affordable housing options to Americans.

Using the loans

FNA 203K rehab loans are used to rehabilitate homes that are either foreclosed, distressed, suffering from structural deterioration or in need of major infrastructure improvements. They are often used in lower-income neighborhoods. More recently, they have also been used in gentrifying neighborhoods that suffered from a glut of empty homes in the wake of the housing crisis. For the most part, the loans are used to rehabilitate family homes, be they can also be used for single-family homes or homes that include as many as four families. They can also be used to rehabilitate individual condominiums and residential units in mixed-use buildings.

Property owners who take out 203K rehab loans are required to complete the following improvements before they do any other rehab work:

  • Increase energy efficiency. To ensure that hearting and air conditioning systems don't produce wasted air, the property owners must take steps to weatherstrip all doors and windows, seal all openings, cracks and joints and make sure attic and crawlspaces have adequate ventilation.
  • Improve safety. Owners must make sure that each sleeping room has at least one clearly labeled, functioning smoke detector installed. They should also check for hazardous materials such as asbestos and take steps to remove it.

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