FHA 203(k) Loan

What is FHA 203(k) Loan?

An FHA 203 (k) loan is a government-insured mortgage that allows a borrower to take one loan for two purposes. This loan is a type of Home Loan. So the borrower could opt for one loan for two purposes like home loan and home renovation.

The purpose of such a loan is to encourage the ownership of homes among people from lower-Income households. One can improve and update their older properties. However, the home an individual wants to repair has to be their primary residence.

The FHA 203 (k) loan covers the price of the home to be purchased and the cost of renovation including material and labour. The loan also covers the need for temporary housing funds like rent during the period of the house under construction and repair. This dual loan removes the need for the borrower to make two separate loan applications for a home loan and home renovation. This may not even be approved by a Bank or may come with a higher cost and rate of interest.

However, the complete home renovation should not take more than 6 months as mentioned in the FHA guide for a 203 (k) loan.

Types of FHA 203 (k) Loans

There are two types of 203(k) loans known as streamline 203(k) and standard 203 (k). These types of loan are only for individuals and families intending to buy or renovate a home of the primary residence. Real Estate investors and other commercial activities will not be qualified for the loan.

1. Streamline 201(k): Minimal Repairs

An individual or family can opt for this loan when the home does not require much work. This option will not include the structural work on the home like adding new rooms or landscaping.

2. Standard 2013(k): Extensive Work

This option can be used when the home requires extensive repairs and structural work that is needed. Some of the activities included under this loan are flooring, plumbing, heat and air conditioning system, landscape improvements, conservation system, window and door replacement, landscape changes, energy conservation system, etc.