How to Finance a Fixer-Upper House With an FHA 203 Program

The FHA 203 Program is a government backed loan available through the Department of Housing and Urban Development (HUD). This loan program is for people who want to purchase a home and for owners who want to refinance their mortgages. The FHA 203 Program is for existing properties of 1 to 4 units.

Instructions

Difficulty: Moderate

1. Work with your lender to determine how much you can borrow. The FHA 203 Program is a government program, but you can access the loan through any HUD approved mortgage lender. They help you determine how much of a home you can afford based on your financial ability to repay the loan.
2. Qualify for the FHA 203 Program. Only homeowners who will live in the house can obtain this type of loan. Investors may not. To determine if you qualify, work with your lender to go over the FHA stipulations on this program. Some non-profit organizations also qualify.
3. Find a house. If the home is a fixer upper, determine the extent of work needed for repairs. Determine if the value of the renovation is worth the investment and within your budget for a mortgage loan.
4. Get an estimate for repairs from a contractor. An accurate estimate is crucial because the amount of the loan can't be changed during the application process or after the loan has been approved. A minimum repair value of $5000 is necessary to use this program.
5. Apply for the FHA 203 Program through your mortgage lender. You need to supply information documenting your finances and identity, as well as the home's value.
6. Ask for two appraisals. One determines the value of the home as is. The second determines the value after the repairs are made. The loan must be 110% or less of the home's after-repair value. The house also qualifies if the loan does not exceed the value of the home as is plus the cost of repairs and the cost of six monthly mortgage payments.
7. Hire a licensed contractor to work on the home or complete the job yourself. The FHA 203 program requires the work to be completed within the first six months. If you do the work yourself, you are only paid for the materials through the loan. If you hire a contractor, both labor and materials are financed. Any extra funds are applied to the principle balance of the loan.
8. Finalize the FHA 203 loan. The loan doesn't close until after the work passes inspection of the appraiser. A three-percent down payment is required on this loan and is payable upfront.

Tips & Warnings

• The FHA 203 Program is not for flipping homes. You must live in the home for at least one year following the purchase.