Eligible Property Requirements for 203k Loans
Most of the properties that are part of HUD repossessed homes are 203k eligible. HUD homes are residential 1-to-4 unit properties that are repossessed by HUD after foreclosure proceeding on a FHA-insured home loan. In order to recoup the loss associated with the payment default and foreclosure process, HUD offers repossessed residential homes for sale. These repossessed HUD properties are usually in need of minor to major repairs. A homebuyer can use the FHA 203k program to rehab HUD properties that are 203k eligible.
The listings of HUD REO single-family homes can be found on the Home Store website operated by HUD. Buyers, investors, brokers and everyone else can access this central repository for the latest homes offered for sale by HUD. The entire HUD home inventory can be searched using a number of different parameters. All the 203k eligible homes can be found by choosing the appropriate option on the search form. In addition to the property listings, an approved broker or realty can place bids on homes they wish to acquire. A new home buyer can use the HUD 203k loan to find a suitable property even if the property needs renovation.
203k Eligible Property Requirements
HUD homes that are eligible for 203k can be found based on the information provided on the individual property’s listing page. The following are the various requirements and guidelines that pertain to property eligibility.
To be eligible for the HUD 203k program, the subject property must be a residential dwelling. The property must be completed for at least a year with a maximum of four units. Basically, the property must be zoned residential and meet all the requirements of local area jurisdiction. Any and all new units must be attached to prevailing building structure. The units cannot be detached. Units that are part of cooperatives are not eligible for HUD 203k rehab financing.
Residential properties that need minor repairs (<$35,000) should use the streamline 203k program. This mini-version of the standard 203k program has limited requirements when it comes to loan approval. A 203k consultant is not required.
Construction and Conversion allowed
Even homes that are going to be completely razed or destroyed as a part of the proposed renovation work are eligible for 203k HUD loans, provided some of the previously existing foundation remains in place. A complete rehab project that involves extensive construction and structural changes can be financed this way.
In addition to the above, a FHA rehab loan can be used to reduce or increase a 203k eligible property’s units that fall within the residential guidelines. A single-family home can be converted to a multi-family home or a multi–unit dwelling can be converted to a 1-to-4 unit property.
An existing dwelling on one site can be moved to a newly mortgage property using 203k; however, the loan proceeds will only be released after the structure has been safely affixed to the foundation.
Mixed-unit properties are eligible
HUD 203k loans can be used to renovate or rehabilitate a mixed-use property. A property that consists of both commercial and residential utility is considered to be of mixed-use. To become 203k eligible, a mixed-use property must have commercial portions restricted to 25% for a one story, 33% for a three story and 49% for a two story of the entire available floor area. The business activity in the commercial space should not adversely affect the health and the safety of the occupants of the residential area. The rehabilitation funds through 203k HUD financing must be used only on the residential sections and access areas leading to it.
Condo Renovation with HUD 203k
Condo units in buildings that meet eligibility can be rehabbed with a section 203(K) mortgage. The condominium building and development must be FHA-approved. The 203k funds must only be used on the interior of the condo unit. Common areas that fall under the HOA are not eligible for repair. Only borrowers who occupy the condo unit as their primary residence qua