You Can Upgrade with a 203k Loan


By Bill Primavera

The Home Guru

      “Most people don’t know about the 203(k) loan,” said Salvatore Callareme, a mortgage consultant with Continental Home Loans, reminding me that I’ve been hearing more about greater numbers of applications for this loan from individuals who want to purchase foreclosures, vacant properties and fixer-uppers in need of work, as well as those who want to upgrade or repair their currently-owned homes.

     The Section 203(k) loan program is offered by the U.S. Department of Housing and Urban Development (HUD) allowing an individual home buyer to finance the purchase of a property and to include the cost of its repairs through a single mortgage. Such loans are provided through HUD-approved mortgage lenders and insured by the Federal Housing Administration (FHA).

     The 203(k) program is particularly beneficial to moderate-income buyers because the down payment can be as low as three percent. The loan can be taken as a 15- or 30-year fixed rate mortgage or as an adjustable rate from an HUD-approved lender. The total amount of the mortgage is based on the projected value of the property after the renovation is completed, and the purchased property must be used as a principal residence for the buyer. A portion of the loan pays for the purchase of the home and the remainder is placed in an interest-bearing account and released in stages as rehabilitation is completed. 

   It is required that a minimum of $5,000 goes toward eligible repairs and that the work be done within six months after the closing. An especially appealing feature of the loan is that, if the buyer is not planning to live in the home during construction, up to six months of mortgage payments can be financed to allow for the renovation period. In addition, the buyer can act as his own general contractor or do all the labor himself if he is qualified.  Any money saved this way can be used for cost overruns or other improvements.

     “It really does help many buyers,” said Sal. “It’s been around a long time but not many people used it when there were many banks giving construction or rehab loans. But now it’s the number one loan because it offers a low down payment and it’s pretty much a grant where the money is secured by the government.”

      As an example, Sal said, “I had an individual wanting to purchase a house, but during the inspection he found that the roof and gutters had been damaged due to weather conditions. This was just prior to the appraisal being completed, but the contract had already been signed. The seller didn’t want to deal with replacing the roof, so he agreed to a lower price, and my client applied for the 203(k) that included the rehab into the loan.” 

     Sal’s buyer got a contractor to estimate costs and to do the work, and the customer applied for a streamlined 203(k), which is one that is under $35,000, for the repairs or upgrades, and therefore doesn’t require an FHA consultant as a full 203 (k) would. The property was then appraised both ‘as is’ and as a future appraisal, reflecting the value of the home after the renovation was done.

       “You’re paying a little extra than if you were putting 20 percent down,” Sal continued, “because private mortgage insurance is required on conventional loans when loan to value is higher than 80 percent.  Of course, the buyer must qualify for an FHA, depending on income, a good credit rating and the value of the home. It can’t be done if you’re self-employed and can’t show income,” he advised. “But overall, it’s a win-win situation.”

   Another interesting application that I learned of recently was for the purchase of a property

listed by Maria G. Litrenta of Coldwell Banker that was a summer home, without heat, in Mohegan Lake. Priced below market value, the property received multiple bids and sold well above asking price to a buyer who applied for and received a 203(k) loan for winterizing the home with an oil burner and insulation.

      A 203(k) loan can accommodate a broad variety of different improvements in the same property, as demonstrated by a deal that Ken Bicknese of Nationwide Equities is currently working on. “In this case, we have an unusable refrigerator and an antiquated stove in the kitchen,” Ken specified. “The bedroom carpets have been removed, the hall bath needs renovation badly and the boiler, while working, is very outdated.” Ken calculated the costs of these repairs at exactly $23,359 which, when added to the purchase price of the house of $345,000, totals $368, 359.  The borrower is putting down 3.5 percent and has applied for a loan amount of $355,466.” 

     While cooperative units and investment properties are not eligible, the 203(k) can be used for a number of total rehabilitation projects, including:  one-to four-unit residences that has been completed for at least one year, either detached homes or townhouses, and condominiums (but for interior improvements only);  mixed-use residential properties that include commercial space; conversion of a one-unit residence to a two, three or four family dwelling; conversion of an existing multi-unit dwelling to a one- to four-family unit; an existing house or modular unit on another site that can be moved to the mortgaged property; and, homes that have been demolished or will be demolished, if some of the existing foundations remains in place.

     Other uses to which a 203(k) loan can be applied are: adding a second story, building a family room or another bath, finishing a basement or attic, upgrading plumbing, heating, air conditioning or electric service, and installing new siding, as well as energy efficient windows and doors.

    Especially in today’s market where buyers are looking for lower-priced properties that may require work, the 203 (k) is useful and understandably very popular. To know more, contact either Salvatore Callarame of Continental Home Loans, who can be reached at 914-367-0188, or Ken Bicknese of Nationwide Equities, who can be reached at 914-262-2300.


Bill Primavera is a licensed Realtor® (, affiliated with Coldwell Banker, and a marketing practitioner ( He can be emailed at or reached directly at 914-522-2076.


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