What is a 203k or FHA Rehab Loan?

FHA lenders are notorious for being sticklers when it comes to the condition of properties they will lend on. Peeling paint, exposed wiring, third layer of roofing, inadequate crawl space, settlement cracks in the driveway or an unstrapped water heater are just a few of the red flags for FHA loans.

With only a small down payment, what options do you have to buy that dream home that needs a little attention? Funny you should ask, because I have just the loan for you! It's called the 203K or FHA Rehab Loan.

With the same down payment as a conventional FHA loan, the 203k or FHA Rehab Loan allows you to borrow the money needed to complete the required repairs and buy the house, all in one loan.

Go find the fixer-upper of your dreams with your real estate agent, stating on your purchase contract that you are seeking a 203K FHA Rehab Loan for financing. Prepare a detailed proposal showing the scope of work to be done, including a detailed cost estimate of each repair or improvement of the project and present to the lender.

An appraiser will be sent to the property to determine the value of the property after the renovations take place. This is the amount of the loan that the lender will be willing to offer you. For example, if the property is for sale for $120,000, but will be worth $150,000 after repairs and improvements, you will have access to $30,000 to use for the required work. The repair funds are deposited into an escrow account and can be accessed through a series of draws for work that has been completed.

Up to six mortgage payments can be put into the cost of rehabilitation if you are not going to be occupying the property during construction. However, the amount of these payments cannot exceed the length of time you have estimated to complete the rehab. This allows you to avoid having two housing payments as you live in one residence, while working on the other.

You will need to get bids from contractors for each job to be performed. Some smaller tasks can be done by you, but check with your lender first. If you are doing some of the work yourself, you can be reimbursed for the material involved, but not for your labor.

When searching for your Orlando Mortgage or any Florida Mortgage for that matter, keep in mind the advantages of the federally funded 203K, FHA Rehab Loan.