A 203(k) loan is an Federal Housing Administration loan that is available to buyers who are looking to buy older or damaged homes and make repairs to them; it is backed by the government. This type of loan is sometimes chosen when buyers need to find financing for a home that is considered uninhabitable.
The 203(k) mortgage is available in both regular and streamlined versions. The regular version is geared toward properties that are in need of structural repairs, such as new floor or roof, while the streamlined version is for nonstructural repairs, such as buying new appliances or other remodeling projects. Some of the types of repairs and additions that this type of loan covers includes plumbing, bathroom remodel, kitchen remodel, patios, decks, new siding or new heating, ventilation and air conditioning systems. It will not cover improvements like the addition of a pool or a tennis court, which are considered luxury improvements.
For regular loans under the 203(k) program, borrowers can borrow the as-is assessed value of the home plus the cost of repairs, or they can borrow 110 percent of the estimated value of the home after the repairs are completed. If a streamlined loan is chosen, then the loan will generally be approved for the purchase price plus up to $35,000 for repair work.