FHA 203(k) Loans: What You Should Know
Most people think about purchasing single-family fixer-upper properties or starting remodeling projects to improve the value of an existing home when considering an FHA 203(k) loan, but that's not the only purpose for these loan products.
They can also be used in situations where a natural disaster has damaged or destroyed a home in federally-declared disaster zones. Such a loan, for some homeowners, can be the best way to recover from a storm, hurricane or other disaster.
FHA 203(k) mortgages are offered in new purchase loans, but they are also available as streamline refinance loans. The FHA has rules concerning borrower eligibility and acceptable property types; for example, rehab construction must comply with HUD minimum property standards plus all local codes.
FHA rules state that their 203(k) program is not restricted to single-family homes. They can be used for one-to-four unit property with maximum loan amounts identical to the FHA's main home loan insurance program, the 203(b).
203(k) Rehab loan may also be used for condominiums--with restrictions. According to the FHA, 203(k) loans are intended for "owner/occupant and qualified nonprofit borrowers only .rehabilitation is limited only to the interior of the unit. Mortgage proceeds are not to be used for the rehabilitation of exteriors or other areas which are the responsibility of the condominium association, except for the installation of firewalls in the attic for the unit."
Mixed-use residential property is acceptable for an FHA 203(k) loan, if the property has "no greater than 25% (for a one story building); 33% (for a three story building); and 49% (for a two story building) of its floor area used for commercial (storefront) purposes" according to the regulations.
The FHA also regulates how 203(k) loan money can be used in these cases. Rehab funds can only be used for the residential functions of the dwelling, as well as for areas used to access the residential part of the property.
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