What is a 203(k) loan, and can it be used by investors?
A 203(k) loan is an FHA mortgage that essentially enables the borrower to "finance" home repoairs or improvements into a mortgage. The streamline version can include repair costs up to $35,000, as long as an improved appraised value will reflect the investment. Interest rates for these loans are slightly higher, in the 3/8 to 1/2 ball park, and the underwriting and processing time takes slightly longer.

Repairs/remodeling must begin within 30 days of closing, and be completed within 6 months.

FHA products are designed for owner-occupants, but this program may also be applied to refinances, and owners of dwellings including up to 4 units. This is a great option for a buyer who buys a property and improves it while he's living in it, then later decides to trade up to a larger home, or relocate. Investors who live in one unit of a small multi-family dwelling or duplex, can utilize 203(k) financing for improvements.

The maximum sales price is the FHA conforming limit of $458,850 in order for the property to be eligible; it can also be done in conjunction with a 1, 3, or 5 year ARM product.

203(k)'s are tricky, and it's advisable to use a lender who specializes in them. We have several 203(k) lenders in our Preferred Lender team, so just let us know, and we'll be happy to hook you up!

Posted By: John Baldwin, Atlantic Bay Mortgage on Friday, October 30, 2009