203(k) & Bank Loans

Many homeowners are not aware they can buy and fix-up a home with one loan. If you are purchasing a “fixer-upper,” an FHA 203(k) rehab loan allows you to make your home move-in ready through renovation. Optimum Construction is a certified 203(k) contractor that can help you navigate the red tape of obtaining a 203(k) and keep your project running on-time and on-budget.

What Is an FHA 203(k) Rehab Loan?

FHA 203(k) loans are basically the same as regular FHA 203(b) loans, but with a twist. With an FHA 203(k), you are permitted to include repair and improvement funds in your mortgage and use it to upgrade, improve, or repair the home you are buying. There are two types of FHA 203(k) loans:

  • Standard loans that are more like a construction project
  • Limited loans for minor improvements

The maximum loan amount for each type of loan depends on where your property is located.

FHA 203(k) loans can be used for dwellings of 1-4 units, including:

  • Single-family detached
  • Duplexes
  • Triplexes
  • 4-plexes
  • Mixed-use residential (with certain restrictions)
  • Condominiums (with certain restrictions)

While 203(k) loans have more hurdles to clear than standard bank loans, they can be an excellent tool when buying a home that has potential or for making repairs or upgrades to your current home.

How Does an FHA 203(k) Rehab Loan Work?

FHA guidelines for 203(k) loans require that the general contractor performing the work on your home be skilled and licensed to do such work. The work must also be done in a timely and workman-like manner. For these reasons, most lenders require a licensed contractor to perform the work.

The list of covered repairs, modifications, and renovations for an FHA 203(k) loan is extensive. Each improvement must add value to and/or improve the property and comply with local codes and ordinances as well as HUD’s minimum property standards. Some examples of covered work include:

  • Energy-efficiency upgrades, including windows, solar, and insulation
  • Improving or replacing HVAC, electrical, and plumbing systems
  • Kitchen renovations
  • Structural repairs and modifications, such as moving walls or repairing foundations
  • Accessibility improvements for persons with disabilities

The paperwork for a 203(k) loan is a bit more complicated than a traditional loan and must be completed in a specific way to avoid rejection or delays. A certified 203(k) construction loan contractor can help ensure your paperwork is filled out properly.

The Role of a Certified 203(k) Contractor

There is no such thing as an FHA-approved remodeling or general contractor. Instead, HUD/FHA allows borrowers to hire whichever contractor they want and requires lenders to determine if the selected contractor is acceptable for 203(k) work. Contractors can complete the 203(k) Contractor Certification Program and then present their certificate to lenders to verify their understanding and knowledge of FHA 203(k) loans.

Optimum Construction has extensive experience working with the requirements of an FHA 203(k) loan and knows firsthand what the program requires. To learn more about FHA 203(k) loans or to start the loan process, contact us online or call us at 240-422-9990.

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