FHA Single Family Rehab Program
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.
