The standard FHA loan is called an FHA 203(b) loan. An FHA rehab loan is called an FHA 203(k) loan, referencing the Section. The intention of this loan program is to encourage the improvement of America’s housing stock. The 203k program can be used to rehab a dwelling by rolling the cost of the rehab into the loan amount. At closing, the lender releases enough funds to allow a borrower to acquire the property but will hold back the rest of the loan proceeds that will be used for the rehab.
It’s true that one may use an FHA loan to move a dwelling to another site and to refinance an existing dwelling to rehabilitate the house. In fact, one can even buy a lot that has an old foundation on it and use a 203k loan to essentially build a new house. However, the 203k program is generally used in purchase transactions for the buyer’s rehab.
There are two types of 203k loans—FHA 203k and FHA 203k streamlined. A regular FHA 203k loan allows for an unlimited amount of rehab costs, up to the maximum FHA loan limit (which is $625,500 in the Washington, D.C. area). An FHA 203k streamlined loan allows for rehab up to $35,000. In both cases, the minimum amount of improvements is $5,000. Please note that these rehab loans conform to the same limits and guidelines as regular 203(b) loans.
For a detailed explanation of the 203k program, please visit this HUD portal page.
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LeaderOne Financial Corp. can help you acquire rehab finance via our 203k product. Call LeaderOne and we’ll get you started!