The Department of Housing and Urban Development (HUD) is a government entity that helps both cities and individual homeowners across the country. HUD can help you buy a home, but it’s a little known fact that HUD can also help you improve your home.
Buying a home can be a difficult process, but what if the home of your dreams isn’t quite dreamy enough? What if it’s in need of some serious repairs? That’s where HUD comes in.
What is HUD’s 203(k) program?
When a home buyer wants to purchase a house in need of repair or modernization, the buyer usually has to obtain financing first to purchase the dwelling; additional financing for the rehabilitation; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods. The Section 203(k) program was designed to address this situation.
With HUD’s 203(k) program, the borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property. The mortgage amount is based on the projected value of the property once the work completed, taking into account the cost of the work.
What types of homes are eligible?
For a property to be eligible for a 203(k), it must be a one- to four-family dwelling that has been completed for at least one year. The number of units on the site must be acceptable according to the provisions of local zoning requirements, and all newly constructed units must be attached to the existing dwelling.
Homes that have been demolished, or will be razed as part of the rehabilitation work, are eligible provided the existing foundation system remains in place.
This HUD program not only allows home buyers to complete rehab projects, such as painting, tiling, roofing, etc., it also provides the option of turning a single-family home into a multi-unit dwelling (up to four families), or taking a multi-unit dwelling and converting it into a single family home.
You can also move a modular home onto the site of the mortgaged home, but the HUD funds can’t be used to fix up that property until the new foundation has been properly inspected and the dwelling has been properly placed and secured to the new foundation.
How the Program Can Be Used
There are three ways you can use a HUD 203 (k) to rehab or improve a one-to-four unit dwelling:
1. To purchase a dwelling and the land on which the dwelling is located and rehabilitate it.
2. To purchase a dwelling on another site, move it onto a new foundation on the mortgaged property and rehabilitate it.
3. To refinance existing liens secured against the subject property and rehabilitate such a dwelling.
Home buyers can use the 203(k) program for painting, room additions, decks, and other items even if the home does not need any other improvements; however, all health, safety and energy conservation items must be addressed prior to completing general home improvements.
The 203(k) cannot be used for luxury improvements, such as adding a Jacuzzi or a wine cellar.
For more detailed information about the program, visit the HUD website at hud.gov.