The FHA mortgage program allows the cost of the rehabilitation of a property to be included in the total mortgaged amount. All repairs are made to the property after closing, no work prior to taking ownership. The key is the value is based on the anticipated work to be done. Therefore, an "as is" purchase is possible; regardless of the condition of the property in its present state.

Most mortgage plans provide financing for homes in "move-in ready" condition. Typically, lenders will not lend money until the home is in "move-in" condition. A closing could not take place until those repairs are made. The FHA 203-K plan will allow a closing to occur before the required repairs are made to make the home habitable.

The program also allows for financing to exceed the sale price of he home, sometimes over $100,000. The value of the home is based on the after improved condition. The Appraiser determines the value after reviewing the plans and specs of the proposed repairs and/or additions. For example, if the "as is" contract price of the home is $120,000, and the improvements require an additional $70,000, the total package is $190,000. The maximum loan is, therefore, based on the $190,000 figure. The FHA programs allow for a 3% investment. Therefore, a down payment of $5,700 is required to purchase the home for $120,000 and include $70,000 in repairs.

Allowable Improvements
There is a minimum $5,000 requirement for the eligible improvement on the existing structure of the property. The 203-k plan will allow for a complete tear down of a property and re-building if the exisitng foundation remains in place!

• Structural alterations and reconstruction
• Changes for improved functions and modernization
• Elimination of health and safety hazards
• Changes for aesthetic appeal and elimination of functional obsolescence
• Reconditioning or replacement of plumbing and/or electrical systems
• Roofing, gutters and down spouts
• Flooring
• Energy Conservation Improvements (windows, insulation, solar heating systems, etc.)
• Major landscaping work and site improvements to increase value and preserve land from erosion
• Improvements for accessibility for the Handicapped

Eligible Properties
To be eligible, the property must be a one to four family dwelling completed for at least one year. The number of units on the site must be acceptable according to the provisions of local zoning requirements.

Homes never completed cannot be acceptable into the 203-K program; construction of the property must have been completed for at least a year. Evidences of completion would be a Certificate of Occupancy or other similar documentation from the local jurisdiction.

Homes demolished, or to be razed as part of the rehabilitation work, are eligible provided the existing foundation system is not affected and will be used again. The complete foundation system must remain in place. A report from a licensed structural engineer is required stating the existing foundation is structurally sound and capable of supporting the proposed construction of the new dwelling. The new dwelling may include an addition to the existing foundation.

In addition to typical home rehabilitation projects, the program can be used to convert a one family dwelling into a multiple unit dwelling if acceptable to the local ordinance requirements. A multiple unit may be converted to a single family home as well.

Mixed-use properties are acceptable if the square footage requirements are met. Repairs can only be made to the residential portion of the home.

Highlights

• Minimum down payment is 3% of total cost (purchase and Rehab)
• Refinancing existing loans and including the cost of repairs in the new loan is also acceptable in the 203-K program
• The seller may contribute up to 6% of the sales price towards the buyer's closing cost
• Maximum mortgage amount may exceed the after-improved value by 7%
• All Rehab work must be completed within 6 months after closing
• Up to five draw are allowed to complete the job, each draw request require an inspection before money is released
• A 10% to 15% of the cost of repairs contingency reserve fund is mandatory to protect the buyer from unforeseen expenses
• Monies not accessed from the contingency fund may be used for added repairs or improvements
• Monies not used will be applied to the principle balance of the loan
• Up to six months of mortgage payments may be included in rehab cost if the repairs are extensive and alternate housing cost is needed