FHA- Lower Down Payment Requirements

FHA insured Loan - Apply Now

Insured mortgage loans are issued by federally qualified lenders and insured by the U.S. Federal Housing Authority, a division of the U.S. Department of Housing and Urban Development.

FHA insured insured loans are an attractive option, especially for first-time homeowners:

Generally easier to qualify for than conventional loans.
Lower down payment requirements.
Cannot exceed statutory loan limits.

The May Mortgage Team FHA insured Insured Renovation Loan 203K - Apply Now

The Federal Housing Administration (FHA insured), which is part of the Department of Housing and Urban Development (HUD), administers various single family mortgage insurance programs. These programs operate through FHA insured-approved lending institutions which submit applications to have the property appraised and have the buyer's credit approved. These lenders fund the mortgage loans which the Department insures. HUD does not make direct loans to help people buy homes.

The FHA insured insured 203k loan program is the Department's primary program for the rehabilitation and repair of single family properties. Basically it is a home improvement loan. As such, it is an important tool for community and neighborhood revitalization and for expanding homeownership opportunities. Since these are the primary goals of HUD, the Department believes that FHA insured insured 203k loan is an important program and they intend to continue to strongly support the program and the lenders that participate in it.

Lenders have successfully used the FHA insured insured 203k loan program in partnership with state and local housing agencies and nonprofit organizations to rehabilitate properties. These lenders, along with state and local government agencies, have found ways to combine the FHA insured insured 203k loan with other financial resources, such as HUD's HOME, HOPE, and Community Development Block Grant Programs, to assist borrowers. Several state housing finance agencies have designed programs, specifically for use with FHA insured insured 203k loan and some lenders have also used the expertise of local housing agencies and nonprofit organizations to help manage the rehabilitation processing.

HUD also believes that the FHA insured insured 203k loan program is an excellent means for lenders to demonstrate their commitment to lending in lower income communities and to help meet their responsibilities under the Community Reinvestment Act (CRA). HUD is committed to increasing homeownership opportunities for families in these communities and Section 203(k) is an excellent product for use with CRA-type lending programs.

FHA insured Insured 203K Loan - How the Program Can Be Used:

This program 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 rehabilitate it.
To purchase a dwelling on another site, move it onto a new foundation on the mortgaged property and rehabilitate it.
To refinance existing indebtedness and rehabilitate a dwelling;

To purchase a dwelling and the land on which the dwelling is located and rehabilitate it, and to refinance existing indebtedness and rehabilitate such a dwelling, the mortgage must be a first lien on the property and the loan proceeds (other than rehabilitation funds) must be available before the rehabilitation begins.

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

To be eligible for the FHA insured 203k mortgage loan, 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 site 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 in place.

In addition to typical home improvement loan projects, the FHA insured 203-k mortgage loan program can be used to convert a one-family dwelling to a two-, three-, or four-family dwelling. An existing multi-unit dwelling could be decreased to a one- to four-family unit.

An existing house (or modular unit) on another site can be moved onto the mortgaged property; however, release of loan proceeds for the existing structure on the non-mortgaged property is not allowed until the new foundation has been properly inspected and the dwelling has been properly placed and secured to the new foundation.

A 203-k mortgage loan may be originated on a "mixed use" residential property provided: (1) The property has no greater than 25 percent (for a one story building); 33 percent (for a three story building); and 49 percent (for a two story building) of its floor area used for commercial (storefront) purposes; (2) the commercial use will not affect the health and safety of the occupants of the residential property; and (3) the rehabilitation funds will only be used for the residential functions of the dwelling and areas used to access the residential part of the property.

Q&A for FHA insured 203K loans - Contact Us

What is the minimum amount of repairs required on a FHA insured 203k home improvement loan?
There is a minimum $10,000 requirement of eligible home improvement loan projects on the existing structure of the property. Minor or cosmetic repairs may be included after meeting the first $5,000 worth of repairs.

What are some of the repairs that qualify for the first $10,000?

Structural alterations and reconstruction: (Repair or replacement of structural damage, chimney repair, additions to the structure, installation of additional bath(s), skylights, finished attics and/or basements, repair of termite damage and the treatment against termites)

Elimination of health and safety hazards
Changes for aesthetic appeal: (New siding, adding a dormer, covered porch, attached garage).
Air Conditioning or replacement: (plumbing, heating, air conditioning and electrical systems).
Installation of well, septic system or connection to public utilities.
Roofing, Gutter Downspouts, Flooring, Tiling and Carpeting.
Major landscape and site improvement.
Improvements to improve accessibility and functions for the disabled.

What are the qualifications to be able to obtain a FHA insured 203-k loan?

The qualifications requirements are the same as a typical FHA insured mortgage loan. The only additional item that the borrower needs is either enough cash reserved to pay for materials and labor until they are reimbursed through a draw, or a credit card with an adequate available balance. If there is to be a contractor involved, the contractor may choose to cover these costs.

The interest rate on a typical FHA insured 203k mortgage loan is a little higher than a standard FHA insured or conventional 30/15-year fixed-rate loan. The cash requirements are the same as an FHA insured loan, 3 percent to 5 percent, which is less than a typical conventional loan. There are a couple of additional fees which pertain to the construction aspects of the FHA insured 203k loan.

Can I pick my own contractor to do the work?

You may decide on your own contractor, and they should be brought into the process in the beginning stage of the loan process. Check out the credentials of the contractor thoroughly, making sure he is knowledgeable in all aspects of rehabilitation work.

The home improvements or repairs need not be made before moving into the property, depending on how extensive the repairs are and whether the house is habitable while the repairs are being made. The home improvement loan provides the ability to include up to 6 months of mortgage payments in the improvement escrow, should you not be able to occupy the property and have to pay rent during rehabilitation.

If you have additional questions about how the loan works please don't hesitate to contact me for additional questions. I look forward to helping you make the right loan decision as you move forward in the loan process.