The 203k Rehabilitation Program is FHA/HUD main loan program for providing home repair assistance for single-family dwellings.
There are 2 different loans programs based on loans amounts:
There are two main circumstances where a 203(k) loan are useful:
Renovating your current home: If you already own a home and want to finance improvements, you can refinance your existing mortgage with a 203(k) loan to free up cash for renovations.
Buying a fixer-upper: If you find a house that needs repairs in order to be livable or that you want to upgrade, you can use a 203(k) loan to cover both the purchase price and the cost of renovations.
Single mortgage: You apply with a lender for one FHA-insured mortgage that covers both the purchase price of the home and the cost of renovations.
Split loan amount: The loan amount is divided into two parts: one for the purchase price and one specifically for the renovation project.
Escrow account: The funds for the renovation project are held in a special escrow account. This account ensures the money is used for approved improvements and helps manage the project flow.
Staged releases: The money is released to the contractor in stages as the work is completed. A qualified inspector must sign off on each stage of the renovation before the next tranche of funds is released from escrow. This protects both the borrower and the lender.
Pros of a 203(k) Loan:
Cons of a 203(k) loan:
For more detailed information on this program see Rehab A Home With Hud 203 (k).