I want to thank Gina Peterson of Jersey Mortgage for coming on the njretoday blogtalkradio show where we discussed the pros and cons of the financing FHA 203k loan. Jersey Mortgage Company is an FHA 203k streamlined lender. If you have questions or would like to apply for this loan, please contact Gina Peterson at 908-603-1139.

FHA 203K=Loan to Purchase Home+Costs to Renovate the Home.

You can download this pdf that will provide you with a complete overview of FAQs for FHA 203K.

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FHA 203k Financing FAQs and Guidelines

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1. What’s the difference between FHA 203k versus FHA 203b?

FHA provides mortgage insurance to protect lenders against the risk of default on mortgages to qualified buyers with as little as 3.5%. Provided it will be the buyers primary residence 1-4 unit residence. A 203k loan will finance the cost home and rehabilitation provided it is at least $5,000. 203k will allow homebuyers and homeowners to finance the purchase or refinance of a house and the cost of its rehab through a single mortgage.
FHA’s Streamlined 203(k) program permits homebuyers to finance up to an additional $35,000 into their mortgage to upgrade their home prior to moving in.  Property repairs or improvements, will be noted by a home inspector or FHA appraiser.

Do I need to hire a HUD consultant? A HUD consultant is not needed for a streamline, however the lenders may request one to manage the project if the repairs falls out of the borrower’s area of expertise, and there are variety of sub-contractors involved. The consultant protects the buyer and the lender to ensure the contractors are following the proper protocol such as professional craftsmanship, and meeting deadlines.

The Following Updates or Repairs May be Made 

  • Roofs, gutters and downspouts
  • HVAC systems (heating, venting and air conditioning)
  • Plumbing and electrical
  • Minor kitchen and bath remodels
  • Flooring: carpet, tile, wood, etc.
  • Interior and exterior painting
  • New windows and doors
  • Weather stripping & insulation
  • Improvements for persons with disabilities
  • Energy efficient improvements
  • Stabilizing or removing lead-based paint
  • Decks, patios, porches
  • Basement completion and waterproofing
  • Septic or well systems
  • Purchase of new kitchen appliances or washer / dryer


Items generally not included:

  • Landscaping or yard work
  • Major remodeling
  • Structural Enhancements
  • Room additions or add-ons to the home
  • Fixing structural damage

Standard 203K

Homes can be demolished as long as the existing foundation remains in place.  Buyer can convert a one-family dwelling to a two-, three-, or four-family.  An existing multi-unit dwelling could be decreased to a one- to four-family unit.

A 203(k) mortgage may be originated on a “mixed use” residential property provided: (1) The commercial property portion has no greater than 25 percent (for a one story building); 33 percent (for a three story building); and 49 percent (for a two story building); (2) the commercial use is environmentally friendly (3) the rehabilitation funds will only be used for the residential functions of the dwelling and areas used to access the residential part of the property.

Additional Costs Associated with Standard 203K

  • Cost of HUD Consultant
  • A ten (10) percent holdback is required on each release from the Rehabilitation Escrow Account in the event liens have been filed on the property after closing
  • Contingency reserve of a minimum of ten (10) percent of the cost of rehabilitation but  cannot exceed 20 percent when major overhaul is being done

Common Questions

  1. Do I have to start marking payments right away on an FHA 203k loan? If the property is inhabitable, aborrower can include up to six (6) mortgage payments (including the mortgage insurance premium) in the cost of rehabilitation. Any funds that remain are added to the principal.
  2. Are the interest rates higher on an FHA 203K?  The interest rates are typically higher on this loan due to the risk associated.  The lender is absorbing some risk by closing on the loan of a house in need of repairs.
  3. Can I refinance at any time? Homebuyers who purchase a property with cash can refinance the property using 203(k) after six (6) months of purchase, the same as if the buyer purchased the property with a 203(k) insured loan to begin with.
  4. How long does it take to get a mortgage commitment on a FHA 203k? Provided all parties are operating efficiently, the commitment has been delivered in 2-3 weeks or 30-45 days.
  5. It would be in the buyers’ best interest to do some preliminary leg work with contractors in preparation for the walk through with consultant developing the scope of work?  If all parties are in place, the decisions on repairs have been made, contractor is selected, and appraiser is completed soon after.  Along with the responsiveness in delivering paperwork this loan has closed in 30 days Here are the Steps to Closing

Homebuyer Locates the Property.

Preliminary Feasibility Analysis is completed: Marketability analysis before and after repair value is assessed.

1) The extent of the rehabilitation work required;

2) Rough cost estimate of the work; and

3) The expected market value

  • Sales Contract is Executed.
  • Homebuyer Selects Mortgage Lender.
  • Consultant Prepares Work Write-up and Cost Estimate.
  • Lender Requests HUD Case Number.
  • Fee Consultant Visits Property.
  • Appraiser Performs the Appraisal.
  • Lender Reviews the Application
  • Issuance of Conditional Commitment/Statement of Appraised Value.
  • Lender Issues Firm Commitment.

If the application is found acceptable, the firm commitment is issued to the borrower. It states the maximum mortgage amount that HUD will insure for the borrower and the property.

Mortgage Loan Closing.

The borrower is required to begin making mortgage payments on the entire principal amount for the mortgage, including the amount in the Rehabilitation Escrow Account that has not yet been disbursed.

Mortgage Insurance Endorsement.

Following loan closing, the lender submits copies of the mortgage documents to the HUD office for mortgage insurance endorsement. HUD reviews the submission and, if found acceptable, issues a Mortgage Insurance Certificate to the lender.

Rehabilitation Construction Begins.

The homeowner has up to six (6) months to complete the work depending on the extent of work to be completed. (Lenders may require less than six months.)

Releases from Rehabilitation Escrow Account.

As construction progresses, funds are released after the work is inspected by a HUD-approved inspector. A maximum of four draw inspections plus a final inspection are allowed. The inspector reviews the Draw Request (form HUD-9746-A) that is prepared by the borrower and contractor. If the cost of rehabilitation exceeds $10,000, additional draw inspections are authorized provided the lender and borrower agree in writing and the number of draw inspections is shown on form HUD-92700, 203(k) Maximum Mortgage Worksheet.

Completion of Work/Final Inspection.

When all work is complete according to the approved architectural exhibits and change orders, the borrower provides a letter indicating that all work is satisfactorily complete and ready for final inspection. If the HUD-approved inspector agrees, the final draw may be released, minus the required 10 percent holdback. If there is unused contingency funds or mortgage payment reserves in the Account, the lender must apply the funds to prepay the mortgage principal.

6. What if the lender sells my loan to another party? How does that affect my ability to access funds?

If the loan has been transferred there could be a delay until the buyer receives the servicing package from the new lender.  However, after closing and during the transfer of services we are working on submitting copies of the mortgage documents to the HUD office for mortgage insurance endorsement. HUD reviews the submission and, if found acceptable, issues a Mortgage Insurance Certificate to the lender.  The first draw must not be scheduled until the lender has determined that the applicable building permits have been issued. The lender (or its agent) will release escrowed funds upon completion of the proposed rehabilitation in accordance with the Work Write-Up and the Draw Request (Form HUD-9746,A). The terms and rate will not change.

7. Can an investor purchase a home with FHA 203k?

Investors are not allowed to use the insurance of FHA to purchase a home.  FHA loans are solely for primary residence owner occupied.
8. How much is the appraisal costs on a FHA 203k loan in comparison to
FHA loan or FHA 203b? 
The cost of the appraisal is the same.  However, the buyer will have an additional expense using the services of a 203k HUD consultant who will oversee the project. The appraiser will work closely with the consultant in reviewing the scope of work to determine the after appraised value. Provided the house is within the FHA loan limit’s the repair portion can go up to 110% of the after appraised value.
9. If I am buying a house through FHA financing and not using the K, if the house requires $5,000 or less in repairs, can I still qualify for the loan?  An example of some of the repairs that must be done prior to closing. You’ll have to address health and safety issues and meet building codes. Items such as, mold, termite damage, radon, chipped paint, cracks in walkway etc.? Any items addressed on the appraisal will include an estimated cost to cure. The buyer and seller will be required to both sign a repair agreement that will indicate who is going to remedy the repairs noted in the appraiser.  Those repairs will need to be completed prior to closing and a re-inspection will be ordered.
9. Can I select my own contractors or do they have to be hud certified? YES, The contractors will need to meet certain requirements. The lender will review the contractor’s experience, background and referrals. Copy of contractor’s insurance, license, copy of the contractor’s estimate and the agreement between the contractor and borrower.

10. Can I the borrower do the work himself? Lender will review documentation supporting the borrower’s knowledge, experience and ability to perform the necessary work.  It does not include labor; only materials costs are allowed

Post By Audeliz Angie Perez (160 Posts)

Angie Perez is a NJ Circle of Excellence award winning real estate agent for Re/Max Select in Westfield NJ. She sells anywhere from 12-25 houses per year on a consistent basis since 2005. Ms. Perez is primarily a buyer's agent on 60% of her real estate sales where she represents rental income investors, first time home buyers & trade up home buyers of 1-4 family homes within specific towns encompassing 4 NJ counties: Union, Essex, Middlesex and Somerset County. Many of Ms. Perez's clients appreciate her ability to negotiate favorable real estate deals for them. Many of her clients commented that her research abilities, her honesty, her knowledge of local market trends and her proficiency to manage multiple real estate transactions from start to close are some of the reasons why she was hired as their agent of choice. Please call, text or email Angie Perez to ask if she lists or sell in your town. If she can not help you, Ms. Perez would be more than happy to help or refer you to someone who can.

Website: → NJ Real Estate For Sale




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5 Responses to FHA 203K Loan Guidelines and FAQs

  1. Ramona says:

    Good publish, I must say i look forward to fresh news from you.

  2. Brady Fiscal says:

    Wonderful writing style.

  3. First time at your blog and I really enjoyed reading it. I will come back to check out some of the other articles.

  4. Thanks for the information. I’ll pass it on

  5. CFS Mortgage says:

    203k is a very good program however, getting it is not the easiest process. You have to team up with a great lender who is knowledgeable about it. A good team on your side shortens the closing time by weeks.

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