The FHA 203k Rehabilitation Loan program is HUD's primary program for the renovation and repair of single family homes. Basically, it's a mortgage and home improvement loan rolled into one. The Federal Housing Administration (FHA) bases the mortgage amount on the "as-is" value of the property plus the cost of repairs and renovations.

There must be a minimum of $5000 in repair work. If needed, there are some repairs which are mandatory such as insulation, smoke detectors, damage caused by wood-boring pests and moisture, septic tanks, well or water service, and elimination of health and safety hazards. Other eligible repairs or improvements that can be done to meet the first $5,000 minimum repair requirement include:

• Modernization and functional changes

• Reconditioning or replacing plumbing

• Reconditioning or replacing heating and air conditioning systems

• Electrical upgrades

• Aesthetic upgrades

• Roofing

• Gutters and downspouts

• Damaged flooring, and

• Energy conservation upgrades.

Beyond these, virtually any other improvement can be made such as purchasing new appliances or repairing a pool.

Many additional costs can be financed into the FHA 203(k) Rehabilitation Loan such as:

• Permits

• Inspection costs

• Work write-ups, and

• Supplemental fees.

Other expenses that can be rolled into the loan include the escrow for contingency costs. For structures that are over 30 years old, FHA requires between 10% and 20% of the cost of scheduled repairs to be financed into the loan and escrowed for repair work. If the dwelling is unlivable while the work is being done, then up to 6 monthly mortgage payments can be financed. The maximum amount of time allowed for the completion of repairs is 6 months.

How the FHA 203(k) Rehabilitation Loan Can Be Used:

The FHA 203(k) Rehabilitation Loan can be used to accomplish rehabilitation and/or improvement of an existing one-to-four unit dwelling in one of three ways:

• To purchase a dwelling and the land on which the dwelling is located and renovate it.

• To purchase a dwelling on another site, move it onto a new foundation on the mortgaged property and renovate it.

• To refinance an existing mortgage and renovate a primary home;

To purchase a home and the land on which the home is located and renovate it, or to refinance an existing mortgage and renovate a home, the new mortgage must be a first lien on the property and the loan proceeds (other than rehabilitation funds) must be available before the repair work begins.

To purchase a dwelling on another site, move it onto a new foundation and renovate it, the mortgage must be a first lien on the home. However, the loan proceeds for moving the house cannot be made available until the unit is attached to the new foundation.

Go to FHA 203(k) Rehabilitation Loans to learn more.