203(k) Rehabilitation Loan Program

The U.S. housing market has suffered in the years since the economic downfall. Now, the Federal Housing Administration (FHA) in partnership with the U.S. Department of Housing and Urban Development (HUD) has created a program as part of the Community Reinvestment Act (CRA) to promote the renovation and preservation of existing houses called the Section 203(k) rehabilitation loan program.

The Section 203(k) rehabilitation loan program was designed to allow home buyers to only need one mortgage loan instead of two or three (one to purchase the dwelling, another to finance the rehabilitation construction, and a third for a permanent mortgage when the work is completed). The single loan is at a long-term fixed (or adjustable) rate to finance both the purchasing of the home and the rehabilitation of the property.

There are several requirements to consider a property eligible for the Section 203(k) rehabilitation loan program. These are the requirements for eligibility:

  • The property must be a one- to four-family dwelling that has been completed for at least one year.
  • The number of units on the property must be acceptable according to local zoning requirements.
  • All newly constructed units must be attached to the existing dwelling.
  • Cooperative units are not eligible.
  • Homes that have been demolished, or will be razed as part of the rehabilitation work, are eligible provided some of the existing foundation system remains.

The program can be used to convert a single-family dwelling into a two-, three-, or four-family dwelling. Also, an existing multi-unit dwelling can be decreased to a smaller unit. Section 203(k) is a fantastic program that can be utilized by many to increase the durability and longevity of a home.

Condominium units also qualify under Section 203(k) but must be approved by FHA. There are also conditions for condominium as follows:

  • Owner/occupant and qualified non-profit borrowers only; no investors
  • Rehabilitation is limited to the interior of the unit
  • Only the lesser of five units per condominium association, or 25 percent of the total number of units, can be undergoing rehabilitation at any one time
  • The maximum mortgage amount cannot exceed 100 percent of after-improved value
  • After rehabilitation is complete, the individual buildings within the condominium must not contain more than four units

On top of these requirements, there are also required improvements that need to be completed in order to be financed under Section 203(k). One of the necessary improvements is meeting cost effective energy conservation standards including weather stripping all doors and windows, caulking any openings or cracks, insulating all exposed openings on exterior walls, and adequately ventilating attics and crawl spaces. The Section 203(k) rehabilitation loan program also requires at least one smoke detector in each sleeping area.

Although it seems like there are many requirements, the benefits of a Section 203(k) rehab loan are absolutely worth the investment. For more information about all requirements, eligibility and required improvements, click here.

Be sure to contact Jeff Haeger today and get the experience you need to to put a Section 203(k) rehab loan to work for you!

Jeff Haeger is an Orlando real estate specialist. If you and your family are looking for that special home for sale or perhaps you want to sell your home, be sure to contact Jeff today.

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