The Federal Housing Administration’s (FHA) Section 203(k) program is the primary program for the rehabilitation and repair of single-family properties. It is an important tool for community and neighborhood revitalization and for expanding home ownership opportunities. FHA strongly supports the program and the lenders that participate in it, including those who have used Section 203(k) among other financial resources to assist borrowers. Many lenders have used the program in connection with non-profits and state and local housing agencies to revamp properties.

This program is a great way for lenders to show their commitment to lending in lower income neighborhoods, which helps increase home ownership opportunities for families who might otherwise not be able to afford it. 203(k) differs from traditional mortgage financing in that the focus is not on the condition and value of the property prior to loan closing. In a normal mortgage situation, the home must provide adequate loan security. But with 203(k), improvements and revitalization are expected as part of the program, and the borrower can obtain just one mortgage loan at a long-term fixed (or adjustable) rate to finance both the acquisition and the rehabilitation of the property.

With 203(k), the mortgage amount is based on the estimated value of the property after the work has been completed, and it also takes into account the cost of the improvements. The mortgage loan is eligible for endorsement by HUD to minimize the risk to the mortgage lender. This happens as soon as the mortgage proceeds are disbursed and a rehabilitation escrow account is established.

Eligible properties include one- to four-family dwellings that have been completed for at least one year. Demolished homes must have part of the existing foundation still in place in order to qualify. Additionally, 203(k) can be used to convert single-family homes into two-, three-, or four-family dwellings, or multi-family dwellings could be converted back to single-family occupancy.

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