203(k) Program

• The primary goal of the FHA 203k program is the revitalization of neighborhoods and communities, while providing greater home ownership opportunities. The FHA 203k process allows a home buyer to purchase a home that is in need of updating and repairing, by obtaining one loan for both the purchase and rehabilitation of the home. The loan amount is based on the projected value of the property after the work is completed and includes the cost of the work.
  
  

Locating a Property

• To start the FHA 203k process, you need to locate an eligible property. According to HUD, eligible properties must be "a one- to four-family dwelling that has been completed for at least one year," and multi-housing units are not eligible. A demolished home is eligible, if an adequate amount of the foundation system is intact. FHA-approved individual-unit condominiums are also eligible, although with some conditions.
  
  

Developing a Plan

• Meet with an FHA-approved plan consultant, and ideally, the contractor who will perform the rehabilitation. The property is evaluated to determine what renovations must be completed to meet municipal codes and safety concerns. Secondly, your needs and desires for the outcome of the renovations are considered, and the results of the on-site inspection are used by the consultant to develop a Work Write-Up and Cost Estimate for the proposed renovations. Your lender should be able to direct you to an approved plan consultant.
  
  

Application Process

• The plan consultant presents the final Work Write-Up to your lender, and you fill out a mortgage application. A copy of the Work Write-Up is given to an appraiser, who will appraise the value of the property in its current condition and the estimated value after rehabilitation is finished. The process continues in a manner similar to a conventional mortgage application. A credit package for you is assembled, an underwriter evaluates your creditworthiness, and if appropriate, issues an approval, after which homeowners insurance is obtained and your application proceeds to closing.
  
  

Completion of Work

• When your loan closes, payment is made to the seller for purchase of the existing property, and you are headed down the home stretch of the FHA 203k process. A Renovation Escrow Account is established, construction begins with work being completed according to the time frame recommended by the plan consultant, and funds are released after finished stages of construction are inspected and approved. After all renovations are accomplished, you submit a letter to the lender, indicating the work is done and ready for a final inspection.