Buying a Home That Needs Repairs

If you are considering purchasing a new house that needs extensive work done to it, you might have a hard time qualifying for a conventional loan. Most private lenders require that all repairs be made to the house before the property is purchased. However, these repairs can only be done once you own the house, which presents a sort of catch-22 situation. The FHA has created the 203(k) mortgage to help borrowers out of this dilemma.

What is a 203(k) mortgage?

While it is possible to purchase a house that needs repairs with an acquisition loan, once you own the property you will then need to apply for additional financing to do the rehabilitation construction and then again for the permanent conventional loan once the work is done. These loans typically have very high interest rates and low amortization periods. The 203(k) helps make this entire process easier and more affordable by rolling the cost of all three loans into one. The total amount of the FHA mortgage takes into account the workload, and is based on the projected value of the home after the repairs have been made.

What property is eligible?

The following properties are eligible for a 203(k) mortgage:
- One to four-family units that have been completed for at least one year and meet the local zoning requirements
- Houses that are to be demolished or razed as part of the repair process, as long as some of the original foundation remains
- An existing house to be moved onto the mortgaged property, pending inspection and approval of the new foundation
- “Mixed-use” properties, so long as a specific percentage of the property is used for residential purposes
- Certain FHA-approved condominium units

What can the loan be used for?

In addition to fixing structural problems and making improvements, borrowers are allowed to use the 203(k) mortgage to paint rooms, add rooms, build decks and other additions. Keep in mind that luxury items and improvements are not eligible under this mortgage.

Getting Started

To get started with the loan process, take a minute to fill out our secure online form. This way you will know if you meet the lender’s standards, and how much you can qualify for. Plus it’s free, fast and has no strings attached.

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