An FHA 203 loan is a mortgage loan which is backed by the Federal Housing Administration and used for a specific purpose and specific type of property. There are a few different types of FHA 203 loans, all of which have requirements that must be met by both the borrower and the property in order for the loan to be issued.
Federal Housing Administration
FHA stands for Federal Housing Administration, which is a division of the Department of Housing and Urban Development. According to the Department of Housing and Urban Development, the Federal Housing Administration does not lend out money directly to borrowers, but it insures mortgages which are funded by FHA-approved lenders.
FHA 203 (B)
According to the Real Estate website Broker Outpost, FHA 203(B) loans are unique in that not only do they require only 3.5 percent as down payment, but the down payment money can come from nontraditional sources. Money used for down payment on a FHA 203 (B) loan can come as gift funds from family members or employers, or it can even come from a non-profit organization.
FHA 203 (K)
FHA 203 (K) loans are mortgages which are used for the rehabilitation of houses which have damage or need a lot of improvement work. According to the Department of Housing and Urban Development (HUD), an FHA 203 (K) loan is distinct in that a homebuyer can buy a house and subsequently receive multiple draws of money at different periods of time to complete repair work on the house. The HUD prefers that the work be done by a third-party contractor, though in some cases a homebuyer may qualify to do the work himself.
Property Requirements
Broker Outpost states that in order for a property to qualify for an FHA 203 loan, it has to be a 1-4 residential property. This means that it can be a single family home, duplex, or a unit of three or four residential living spaces, but it cannot be a commercial property. The property must also meet specific requirements designed by the HUD and get approval from the lender after an appraisal from a certified residential appraiser.
Benefits
The main benefit of FHA 203 loans is that they require very low down payments, as low as 3.5 percent. Conventional loans usually require a borrower to put 20% down. FHA 203 loans allow people who do not have a lot of cash and would not otherwise be able to purchase a house, to get a home. A benefit of the FHA 203 (K) loan is that it allows for houses with problems to be rehabilitated, which improves the look of communities.
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