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203k Rehab Construction Loan

To be eligible for the FHA 203k mortgage loan, the property must be a one to four-family dwelling that has been completed for at least one year. The number of units on the site must be acceptable according to your local zoning requirements. All newly constructed units must be attached to the existing dwelling. Cooperative units are not eligible.

Homes that have been demolished, or will be raised as part of the rehabilitation work, are eligible provided some of the existing foundation system remains.

In addition to typical home improvement loan projects, the FHA 203k mortgage loan program can be used to convert a one family dwelling to a two-, three, or four family dwelling. An existing multi-unit dwelling could be decreased to a one to four-family unit.

A 203k mortgage loan may be originated on a "mixed use" residential property provided: (1) The property has no greater than 25 percent (for a one story building); 33 percent (for a three story building); and 49 percent (for a two story building) of its floor area used for commercial (storefront) purposes; (2) the commercial use will not affect the health and safety of the occupants of the residential property; and (3) the rehabilitation funds will only be used for the residential functions of the dwelling and areas used to access the residential part of the property.

What is the minimum amount of repairs required on a FHA 203k home improvement loan?

There is a minimum $5,000 requirement of eligible home improvement loan projects on the existing structure of the property. Minor or cosmetic repairs may be included after meeting the first $5,000 worth of repairs.

What are some of the repairs that qualify for the first $5,000?

Structural alterations and reconstruction: (Repair or replacement of structural damage, chimney repair, additions to the structure, installation of additional bath(s), skylights, finished attics and/or basements, repair of termite damage and the treatment against termites)

- Elimination of health and safety hazards.

- Changes for aesthetic appeal: (New siding, adding a dormer, remodeling kitchen).

- Air Conditioning or replacement: (plumbing, heating, air conditioning and electrical systems).

- Installation septic system or connection to public utilities.

- Roofing, Gutter Downspouts, Flooring, Tiling and/or carpeting.

- Major landscape and landscape site improvement.

- Improvements to increase accessibility for the disabled.

What are the qualifications to obtain a FHA 203k loan?

The requirements are the same as a typical FHA mortgage loan. The only other item that the borrower needs is either enough cash to pay for materials and labor until they are reimbursed through a draw on the construction loan, or a credit card with an adequate available balance. If there is to be a general contractor involved, the general contractor may choose to cover these costs.

The interest rate on a typical FHA 203k mortgage loan is a slightly higher than a standard FHA or conventional 30/15 year fixed rate loan. The cash requirements are the same as an FHA loan, 3 percent to 5 percent, which is less than a typical conventional loan. There are a couple of additional fees which pertain to the construction aspects of the FHA 203k loan.

Can I pick my own general contractor to do the work?

You may decide on your own general contractor, and they should be brought into the process in the beginning stage of the loan process. Check out the credentials of the contractor thoroughly, making sure the general contractor is knowledgeable in all aspects of rehabilitation construction.

The home improvements or repairs do not have to be made before moving into the property, depending on how extensive the repairs and renovations are and whether the house is livable while the repairs and renovations are being made. The home improvement loan provides the ability to include up to 6 months of mortgage payments in the improvement escrow, should you not be able to live in the home and have to pay rent during rehabilitation.

If are looking for a Long Island contractor and are thinking about a construction loan or 203k rehab loan for your home remodeling project, give us a call today for a free estimate.

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