Contrary to popular belief, finding 203K eligible homes is not as hard as it seems. Many people assume that the only eligible properties are those that went through a foreclosure or short sale and have damage. This is not the case, though. Any property that is FHA approved can be eligible for the 203K program as long as you meet the requirements of the program alongside the property.
The main requirement for 203K eligible homes is that they are owner occupied. The FHA did not design programs meant for investors to make a profit. There is an exception to the rule, however. If there is a mixed use building you wish to use the program on, you might be eligible to do so on the residential part of the property only. If you wish to renovate a multiple-unit property, you can do so with this program as long as you occupy one of the units as your own.
The Home Must Need Work
The home you purchase with the FHA 203K program must need work in order to be eligible. The “need” for work can be a subjective term, however. It does not mean that the property must be in shambles so that every person that walks by notices the work the house needs. This could be the case; however, you could also use it on a home that you do not care for the layout. If you want to extend the kitchen; knock down a wall, or put on an addition, these things could make the home 203K eligible.
Properties that are not 203K Eligible Homes
There are certain conditions that a home cannot be in order to be considered one of the 203K eligible homes. This includes:
- New homes – whether still in the building process or existed for less than one year
- Investment homes – you must occupy the property
- Charity homes – Any home owned by a charitable organization is not eligible
- Multiple units that exceed 4 units
Basically, the home needs to be in existence for more than one year, be a 1 to 4 unit property, and not be owned by a charity.
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Consult with HUD
If you do not want to do the search on your own, there is a website provided by HUD that lists homes that are 203K eligible. On this website, you enter the state and county you wish to search, at a minimum, and it will bring up a listing of homes for you. The search also allows you to refine for certain other characteristics, such as street name, price range, the number of bedrooms, and the number of bathrooms if you wish to find a specific type of home.
Once you receive the listing of the houses in the area you specified, you can click on each listing individually. In that listing, you will see on the right-hand side whether or not the home is 203K eligible. This listing can help you minimize the time you spend searching for a specific home.
The Appraisal is what Matters
In the end, the appraisal is what determines whether or not properties can be 203k eligible homes. If the appraisal does not come back high enough either with the home as it stands right now or with the intended work you estimate, then the home will not be able to use FHA 203K financing. The maximum LTV on most properties is 110% of the future value of the home and is what the eligibility of the home is dependent on.
Working closely with a realtor experienced in FHA 203K eligible homes is the easiest way to find the home you want. Once you find a home, working with a lender with plenty of experience in 203K loans is also essential. Shop around with different lenders to see what they have to offer and make sure to ask them about their experience with the program. Just writing up a few of these loans is not enough experience as they can be tedious and time-consuming. You want a lender that knows the program inside and out for the most seamless process possible for you.