What is a Connecticut FHA 203K Rehab Loan?

An FHA 203k loan permits home buyers to finance repair/improvement money into their mortgage to repair, improve or upgrade their home. With this loan option, home buyers can quickly and easily tap into cash to pay for property repairs or improvements, such as those identified by a home inspector or FHA appraiser or home buyer preferences, such as energy efficient improvements, replacement of existing counter tops, appliances, floor coverings, etc. There are two types of FHA 203k Loans: Standard/Rehab (minimum $5,000 up to FHA maximum loan amount) & the Streamline ($0 – $35,000…up to FHA maximum loan amount). The FHA 203k Rehab loan is more like a construction project, and the FHA Streamline 203k Loan is for more minor improvements.

An over-simplified example: Purchase price is $100,000. Upgrades/Repairs/Improvements will cost $15,000. Borrowers loan amount is $115,000 (not to exceed FHA maximum loan amount).

What are the benefits of using an FHA 203k Loan?

The purchase of a house that needs repair is often a catch-22 situation, because the bank won’t lend the money to buy the house until the repairs are complete, and the repairs can’t be done until the house has been purchased. HUD’s FHA 203k loan program can help you with this quagmire and allow you to purchase or refinance a property plus include in the loan, the cost of making the repairs and improvements. Plus the mortgage loan interest on the FHA 203k loan qualifies for the mortgage interest tax deductions like all other mortgage loans. So, the interest that the borrower pays on this “construction” can be all tax deductible! The FHA 203k loan program improves the real estate market because it requires a property to actually be improved….not just purchased. Because of the improvement requirement with the FHA 203k loan program, real estate values are increased, which helps other homeowners in the same neighborhood, invigorates communities, creates work for contractors and commerce is conducted by the purchasing of goods and and services. Simply put, the FHA 203k loan program improves everything associated with it.

What types of repairs and/or modifications are acceptable for an FHA 203k Loan?

Any repairs/improvements/modifications/modernizations that add value to and/or improve the property are acceptable for an FHA 203k Loan. The improvements must comply with HUD’s Minimum Property Standards (24 CFR 200.926d and/or HUD Handbook 4905.1) and all local codes and ordinances. Structural modifications and any work in excess of $35,000 are NOT allowed for the FHA 203k Streamlined Loan, but the FHA 203k Rehab does allow for structural modifications, landscaping and for work in excess of $35,000. Luxury items such as swimming pools, BBQ’s, Gazebos, spas, etc. are not allowed for any 203k loan. However, limited pool repair (max $1500-subject to lender approval) is allowed under both versions of the FHA 203k loan. Examples of allowable repairs/modifications/renovations for the FHA 203k loan (not an all-inclusive list):

Energy Efficient upgrades (windows, insulation, solar systems, etc.)
Repair/Replacement of roofs, gutters and downspouts
Repair/Replacement/upgrade of existing HVAC systems
Repair/Replacement/upgrade of plumbing and electrical systems
Repair/Replacement of flooring
Kitchen remodeling
Painting, both exterior and interior
Weatherization, including storm windows and doors, insulation, weather stripping, etc.
Purchase and installation of appliances, including free-standing ranges, refrigerators, washers/dryers, dishwashers and microwave ovens
Accessibility improvements for persons with disabilities
Lead-based paint stabilization or abatement of lead-based paint hazards
Repair/replace/add exterior decks, patios, porches
Basement finishing and remodeling
Basement waterproofing
Window and door replacements and exterior wall re-siding
Septic system and/or well repair or replacement
Structural repairs/modifications (moving walls, repairing foundations, etc.)

For questions please do not hesitate to reach out to me.

Craig Thibeau
Senior Loan Officer
North East Financial Middletown, CT
Ph 860-334-1354
NMLS 398576 Company NMLS 117273
craig@northeast-mortgage.com
www.northeast-mortgage.com