What is the 203k Program?

What is the 203k Program?

• The FHA 203k Program is a construction loan bundled with an FHA loan product that enables buyers to purchase distressed properties as-is, with a minimum down payment.

Why is the FHA 203k Program a Good Choice for Buyers?

• Buyers can gain instant equity after improvements are complete
• Buyers can focus on location and floor plan instead of poor conditions
• There is less competition for properties, allowing for a more agressive purchase price
• This program is favorable to the REO seller because the sale is written as-is

203k Qualification

• Follows standard FHA guidelines
• Flexible credit underwriting
• 100% financing available with down payment assistance
• Seller can pay closing costs up to 6%
• Fixed and adjustable rate mortgages
• Non-occupant co-borrowers allowed

Eligible Properties

• Single Family Residence
• PUD’s
• Condos
• Owner occupied only
• Purchase or refinance

How does the 203k Program Work?

• Borrower chooses a licensed and bonded general contractor
• FHA approved consultant is contacted by the lender
• The borrower, the general contractor, consultant and Realtor meet at the property to discuss the repairs
• The consultant will complete a work write-up of the repairs and provide the write-up to all parties

What Can Be Improved?

• Major structural repair (including fire damage)
• Kitchen and Bath Additions and Remodels
• Room Additions
• Landscaping
• Roofing
• Flooring
• Pool and Spa Repairs
• Virtually anything (except adding a new pool or spa)

The Appraisal Process

• The appraiser receives the work write-up from the FHA consultant
• The appraiser completes an appraisal to determine the “as completed” value
• The FHA uses 110% of “as completed” value to calculate the maximum mortgage

When The Work Begins

• The borrower, appraisal, work write-up and contractor are underwritten and approved
• The escrow closes (typically about 60 days)
• The improvement funds are held with the lender in a renovation escrow account
• Funds are disbursed based on number of draws determined in the work write-up
• Construction begins

The Construction Process

• Up to 5 draws (including the final) are allowed
• The consultant signs off on the work completed per the write-up and requests draw releases to the general contractor
• A contingency reserve of 10-15% is built into the write-up for budget overruns
• Any remaining funds can be utilized for further improvements or applied to borrowers principal balance
• Construction must be completed within 6 months
• Borrower’s loan payments can be included in the mortgage for up to 6 months (determined in the scope of work and timeline) so they can continue to pay rent or mortgage payment on their present house during construction
• The consultant determines the completion of work and authorizes the final draw to the contractor
• The borrowers move into their BEAUTIFUL, REMODELED HOME!!

* There is also a streamlined loan process, but it’s a little more complex and this Realtor does not recommend it!  The information listed here is my understanding of the program.  For more information please contact Mark DeMecurio at Delta Lending, 925-753-3500.  Visit the official site for more info, but come back!