The 203K Loan is a FHA loan. It provides funding for both the purchase and renovation of a house offered as a mortgage loan. This includes labor and materials. The borrower is usually allowed to have 1 FHA loan at a time. This kind of loan requires less money out of pocket from the borrower. Renovation funds are held in escrow to pay for predetermined renovation work done by approved renovation contractors, once the purchase of the home is closed. There is one loan and one closing. A licensed ‘Hub Inspector’ is responsible for checking the work done by workmen in order to regulate the work. The FULL 203K loan allows for 6 months of mortgage payments prior to the borrower’s move in date. Thirty (30) days after construction completion the borrower begins to repay the loan and is expected to move in within that time as well. In NYC, the minimum amount of repairs allowed is Five Thousand Dollars ($5000.00) The contingency reserve is 15% of the loan i.e. for unforeseen issues which may arise.
The interest rate is determined by the risk factor. The higher the risk, the higher the interest rate. The reserve can upgrade and/ reduce the principal. The loan is allocated over the period of the work, and not upfront. The loan is either considered FULL/regular or streamline. The FULL 203K loan is over Thirty Five Thousand Dollars ($35,000.00); while the streamline is less. A house with open violations can only be bought all cash or as a 203K loan. It is important to note that a 203K loan cannot be done to a co-op residence.
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