How Exactly Do FHA 203ks Work

Those consumers who are looking for a do it yourself home or a home that is in need of repairs should research their options for a loan program that gives those funds to purchase the home, plus additional funds to bring the home up to code.


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It is of utmost importance the home buyer has a skilled contractor who can offer renovation estimates for the work. The bank requires this list of estimates in order to put the loan together for the home buyer. In turn, the financial institution holds the predetermined funds in a separate escrow account. The financial institution disburses funds as the contractor completes a job and the mortgage holder approves the work. The funds for the purchase of the home, plus the predetermined renovation funds are included in one price at closing. An FHA 203K Loan may fit this type of home purchase perfectly.

Even though an FHA 203K Loan is ideal for this type of home purchase the loan itself can be a bit tricky. The mortgage company or bank does not lend any money until all work is done and approved by the contractor. Until the buyer purchases the home, at closing the bank will not disburse funds for repairs.

Another small obstacle is the fact that the consumer buying this home must reside in the home. The HUD organization has a 203K program side stepping this unique dilemma. HUD, if approved allows the consumer to borrow the funds needed for renovations, plus purchase dollars in one mortgage. This type of loan has a few requirements and these requirements are the same for all FHA Loans. The consumer may have to have a down payment and their credit must qualify. This type of loan offers loan limits.

The consumer who is in the market for a home has a couple of options if they are looking to finance the home through an FHA Loan. The first type of FHA Loan is the one above. This loan known as the Streamlined 203K proves simpler. Improvements in these homes cannot total over $35,000; this is the loan the consumer needs. The Mortgage Company or bank will not require the expertise of skilled contractors, architects, engineers or the services of any consultants. The consumer soon realizes that the Streamlined 203K is much less expensive with less red tape and the renovations are quickly completed.

The Standard 203K Loan means the home requires complex renovations involving the structure of the home. When room additions, extensive landscaping and complicated renovations of the home to the point that the home buyer cannot reside in the home until the work is completed, this is the type of loan needed. The Standard 203K requires many more people involved to complete the schedule of renovations needed such as an engineer, consultant, skilled landscapers, drawings by architecture and many inspections during renovations and upon completion of the work.

Gina Wilson

Another post from Gina Wilson – Credit & Loans Specialist Blogger.