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203(k) Rehab Mortgage Insurance

Section 203(k) fills a unique and important need for homebuyers. When buying a house that needs repair or modernization, homebuyers usually have to follow a complicated and costly process. The interim acquisition and improvement loans often have relatively high interest rates, short repayment terms and a balloon payment. However, Section 203(k) offers a solution that helps both borrowers and lenders, insuring a single, long-term, fixed or adjustable rate loan that covers both the acquisition and rehabilitation of a property. Section 203(k) insured loans save borrowers time and money. They also protect the lender by allowing them to have the loan insured even before the condition and value of the property may offer adequate security.  

All persons who can make the monthly mortgage payments are eligible to apply. Cooperative units are not eligible; individual condominium units may be insured if they are in projects that have been approved by FHA or the Department of Veterans Affairs, or meet certain Fannie Mae guidelines.  

The types of improvements that borrowers may make using Section 203(k) financing include: 

  • structural alterations and reconstruction
  • modernization and improvements to the home’s function
  • elimination of health and safety hazards
  • changes that improve appearance and eliminate obsolescence 
  • reconditioning or replacing plumbing; installing a well and/or septic system
  • adding or replacing roofing, gutters, and downspouts 
  • adding or replacing floors and/or floor treatments 
  • major landscape work and site improvements 
  • enhancing accessibility for a disabled person 
  • making energy conservation improvements 

HUD requires that properties financed under this program meet certain basic energy efficiency and structural standards. Applications must be submitted through a FHA approved lender.

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