Section 203(k) insurance enables homebuyers and homeowners to finance
both the purchase (or refinancing) of a house and the cost of its rehabilitation
through a single mortgage—or to finance the rehabilitation of their
existing home.
Section 203(k) is one of many FHA programs that insure mortgage loans,
and thus encourage mortgage companies to make mortgage credit available
to borrowers who would not otherwise qualify for conventional loans on
affordable terms (such as first-time homebuyers) and to residents of disadvantaged
neighborhoods (where mortgages may be hard to get).
Section 203(k) fills a unique and important need for homebuyers in another
way as well. When buying a house that is need of repair or modernization,
homebuyers usually have to follow a complicated and costly process, first
obtaining financing to purchase the property, then getting additional
financing for the rehabilitation work, and finally finding a permanent
mortgage after rehabilitation is completed to pay off the interim loans.
The interim acquisition and improvement loans often have relatively high
interest rates and short repayment terms.
However, Section 203(k) offers a solution that helps both borrowers and
mortgage companies, insuring a single, long-term, fixed- or adjustable-rate
loan that covers both the acquisition and rehabilitation of a property.
Section 203(k) insured loans save borrowers time and money, and also protect
mortgage companies by allowing them to have the loan insured even before
the condition and value of the property may offer adequate security. Insurance
commitments for 17,000 homes were made in FY 1996; the estimated number
of homes to be insured under Section 203(k) for FY 1997 is 19,000, and
15,000 for FY 1998. For housing rehabilitation activities that do not
also require buying or refinancing the property, borrowers may also consider
HUD's Title I Home Improvement Loan program.
The extent of the rehabilitation covered by Section 203(k) insurance
may range from relatively minor (though exceeding $5000 in cost) to virtual
reconstruction: a home that has been demolished or will be razed as part
of rehabilitation is eligible, for example, provided that the existing
foundation system remains in place. Section 203(k)-insured loans can finance
the rehabilitation of the residential portion of a property that also
has non-residential uses; they can also cover the conversion of a property
of any size to a one- to four-unit structure. The types of improvements
that borrowers may make using Section 203(k) financing include:
• Structural alterations and reconstruction.
• Modernization and improvements to the home's
function.
• Elimination of health and safety hazards.
• Changes that improve appearance and eliminate
obsolescence.
• Reconditioning or replacing plumbing; installing
a well and/or septic system.
• Adding or replacing roofing, gutters, and downspouts.
• Adding or replacing floors and/or floor treatments.
• Major landscape work and site improvements.
• Enhancing accessibility for a disabled person.
• Making energy conservation improvements
• Bankruptcy and Foreclosure
• FHA Bridal Registry Account
• FHA Mortgage Insurance
• HUD Reverse Mortgage Program
• Refunds on FHA Loans
• Single Family Rehab Mortgage Program
• Streamline Refinancing for
FHA Mortgages
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