What is a 203k Rehab Loan?

SMCWIA 203K Rehab LoanRehabilitation is defined as the action of restoring something that has been damaged to its former condition. It is fitting that the FHA (Federal Housing Administration) 203k Loan is also referred to as a 203k rehab loan because, as the name suggests, you are able, through your home financing, to restore a home to its former condition.

We have all seen those houses, the ones that have fallen into disrepair due to neglect or perhaps natural disaster. If you are like me, you think to yourself, “that house has real potential, I hope someone who is capable purchases that house and turns it into the beauty it once was.” The 203k allows people to become capable— it allows someone, who qualifies, to roll the costs of the repairs into the mortgage because the total financed amount is based on the future value of the home (the home value after the repairs are made). As with most loan products, there are guidelines that must be followed so it leaves us asking the question, “what is it that the 203k Rehab Loan can do?”

The 203k rehab loan has assisted those affected by natural disasters, including hurricanes and floods, by helping them recover, rebuild, and restart. This loan can fund repair costs of moderate to severe damage that may not be covered by homeowner’s insurance. Some items that come to mind are roof and gutter replacement, mold remediation, new siding installation, remodeling or even waterproofing a basement. The beauty of this loan is that it can be used for a purchase (someone buying a “fixer-upper”) or for a refinance (someone who already owns the home and needs financing for the rehab).

Additionally, homeowners have been able to restore homes that have been vacant for an extended period. Homes such as these may have some unique needs, unlike a home that has had occupants, such as, leaking pipes leading to water damage or mold, non-working appliances, and even pest or animal infestation. If a house possesses these issues the purchase price will likely reflect it but that still leaves the home buyer with the financial responsibility of restoring the home to its original, working condition—that’s where the 203k rehab loan can come into play. As with the natural disasters, the costs to rehab the home are rolled into the mortgage because the home financing is based on the improved value of the home.

To find out more about how you can use the 203k Rehab Loan to help restore a house to a usable, comfortable and safe home check out our dedicated 203k loan webpage.

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