HUD’s Rehabilitation loan program, Section 203(K) is a program designed to facilitate major structural rehabilitation of houses with one to four units that are more than one year old. Condominiums are not eligible.

A 203(K) loan is frequently done as a combination loan. You purchase a “fixer-upper” property “as is” and rehabilitate it. Or, you may refinance a temporary loan to buy the property and do the rehabilitation. It can also be done as a rehabilitation-only loan.

Investors are required to put 15 percent down. Owner-occupants have a required down payment of 3 to 5 percent. A minimum of $5,000 must be spent on major improvements.

Major repairs can be: a new heating system, roof, replacement windows, etc. You may then also finance additional repairs and improvements i.e.: new carpeting, kitchen cabinets, appliances, etc. You must of course “qualify” for the total amount you will be borrowing through this program.

Two appraisals are required. These appraisals will be on the property “as repaired” not “as is.” Plans and specifications for the proposed word must be submitted for architectural review and cost estimation. Once approved mortgage proceeds are advanced periodically during the rehabilitation period to finance the construction costs.