Looking for a Fixer-Upper? FHA203K Loan

The Federal Housing Administration (FHA), which is part of the Department of Housing and Urban Development, is instrumental in providing single-family mortgage insurance programs for millions of people each year. Many people are taking advantage of the FHA203k loan that allows home-buyers to finance, not only their new mortgage, but also the money they'll use to improve it.

This program has many advantages. It's been instrumental in revitalizing communities with older homes, expanding the opportunities for homeownership, and giving people a chance to create the home of their dreams without having to pay for it up front.

Another big advantage of this loan program is the elimination of the catch-22 situation that buyers and sellers can sometimes face when a fixer-upper is on the market: the bank won't lend money until fixes have been made to the home, but fixes can't be made until the home sells.

Steps to obtaining an FHA203k:
1. A potential homebuyer locates a fixer-upper
and executes a sales contract after doing
a feasibility analysis of the property with their
real estate professional. The contract should
state that the buyer is seeking a 203(k) loan
and that the contract is contingent on loan
approval based on additional required repairs by the FHA or the lender.
The appraisal is performed to determine the value of the property after renovation.
2. If the borrower passes the lender's credit-worthiness test, the loan closes for an amount that will cover the purchase or refinance cost of the property, the remodeling costs and the allowable closing costs. The amount of the loan will also include a contingency reserve of 10% to 20% of the total remodeling costs and is used to cover any extra work not included in the original proposal.
3. At closing, the seller of the property is paid off and the remaining funds are put in an escrow account to pay for the repairs and improvements during the rehabilitation period.
4. The mortgage payments and remodeling begin after the loan closes. The borrower can decide to have up to six mortgage payments (PITI) put into the cost of rehabilitation if the property is not going to be occupied during construction, but it cannot exceed the length of time it is estimated to complete the rehab.
5. Escrowed funds are released to the homeowner during construction through a series of draw requests for work that is completed. To ensure completion of the job, 10% of each draw is held back; this money is paid after the homeowner informs the lender that the work has been completed and after the lender determines there are no additional liens on the property.


The down payment expected is usually around 3.5 %. If you are interested in finding out more information you should talk to a local lender. If you are specifically looking in the Niceville area try one of the highly recommended lenders below.

Steve Schutt, Prime Lending 850.678.5229
Mary Marcum, First Florida Bank 850.585.9080
Bart Swan, University Lending 850.678.4663