How Can a FHA 203(k) Loan Work For You?

January 19, 2009


FHA Logo

Federal Housing Administration

Looking to do some improvements on a home you want to purchase, but you don?t have the money to do it or the bank won?t lend on the property because the collateral isn?t in acceptable condition? The Federal Housing Administration (FHA) 203(k) loan may be your answer.

What Is a FHA 203(k)

The FHA 203(k) loan allows buyers to purchase homes that require some modernization or a variety of repairs. The fixes can range from new floors and carpet to granite counter tops and stainless steel appliances. When you think about all the foreclosed properties on the market and the outdated homes needing a ton of work, this loan can really help buyers who might not have the personal funds in savings or be able to secure a typical construction loan to get the financing. Not to mention that construction loans come with very high interest rates and are short-term, which means buyers would have to refinance after the work is complete. This is not the case with the FHA 203(k) loan.

How Does a FHA 203(k) Work?

Buyers must meet with an approved mortgage banker who is allowed to originate the FHA 203(k) loan, such as A&N Mortgage Services. At this meeting, we determine the maximum amount of financing you’re comfortable with securing, which will also include all the potential repair money necessary for the home of your dreams. Once you are qualified for the loan, you can begin to shop for your home with your real estate agent.

When you have written a contract for the purchase of your home, you then meet with a certified FHA 203(k) consultant and a general contractor to determine the exact amount of money needed for the repair work. The three of you then fill out an FHA 203(k) maximum-mortgage worksheet, detailing all the repairs, to be delivered to the end-investor of the loan. You then go through the typical underwriting process and close on the loan. The repair money is escrowed with the title company, and the general contractor can draw on it with the clearance of the FHA 203(k) consultant.  You also have the option to escrow mortgage payments so you don’t pay on a mortgage until the work is complete. This kind of mortgage is typically a 30-year fixed, so you don?t have to worry about it adjusting or having to refinance right away, something you have to think about with a typical construction loan.  There is the caveat that the construction work must be completed within six months of the closing date.

What Types of Property Are Eligible for a FHA 203(k)?

There is a fairly long list of criteria that must be met in order to qualify for a FHA 203(k):

  • Only owner-occupied dwellings
  • 1 -4 unit condos, single-family homes, town homes, and multi-units that have been completed at least one year
  • Conversions from a 1-unit property to a multi-unit property and from a multi-unit property to a 1-unit property

Why choose an FHA 203(k) loan?

Why not? Below are a variety of reasons to choose this loan for mortgage financing:

  • Only requires a 3.5% down payment
  • Community and Neighborhood revitalization for areas that are experiencing high foreclosure rates or declining property values
  • 30-year fixed mortgage
  • Only need a 620 FICO score, but must be approved though Fannie Mae
  • Escrow mortgage payments until work is complete
  • Design the home of your dreams

This is a great mortgage product that will be a big part of 2009 and the future of mortgage lending. Also, this can increase a real estates agents’ sales potential and satisfy clients who wouldn?t get any other financing. Please contact me at 773-255-1600 or at for further details on this product. If you are a Realtor®, I can conduct a FHA 203(k) seminar at my office or in the convenience of yours.

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About Jamie Franz

Jamie Franz is A&N Mortgage Service's Vice President of Sales. He started with the company when they opened their doors in October 2002 as a Mortgage Consultant and spent the first two years of his career primarily focusing on originating loans and building referral partnerships. Originating loans came natural to him and he was soon promoted to a sales management position in October 2004. Since then he has transformed A&N Mortgage Services from a primarily lead-based mortgage company to almost entirely referral-based. Prior to his career in the mortgage industry, he worked for Accenture consulting with Fortune 500 companies. Jamie resides in Chicago, IL. In his free time, he likes to spend time with his beautiful wife and daughter, working out, and enjoying all the local venues in Bucktown. You can reach him at

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6 Responses to “How Can a FHA 203(k) Loan Work For You?”

  1. simon Says:

    is the interest rate for 203k loan is the same for regular FHA loan ?

  2. Jamie Franz Says:

    The interest rate on an FHA 203K loan is about 1-1.5% higher than the going market rate.


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