FHA 203(b) Mortgages (below $5,000)
The 203(b) is the most common mortgage loan product insured by the FHA. If you’ve found a home for sale and it needs $5,000 or less in repairs an FHA 203(b) insured mortgage may be for you. FHA 203(b) mortgage funds also are disbursed to borrowers and their lenders in a single loan amount, much as with most conventional mortgages. Many foreclosed homes owned by the FHA and its parent agency, the Department of Housing and Urban Development, also qualify for FHA loans.
FHA 203(k) Mortgages (between $5,001-35,000)
FHA 203(k) mortgages often are known as rehabilitation mortgages, because they’re intended for homes needing significant rehabilitation. For example, you may find a home needing a teardown of its roof plus extensive foundation work. An FHA 203(k) mortgage is disbursed in several stages, including the amount needed to purchase the home and then additional distributions as repairs are certified as complete. HUD-owned homes needing significant repairs are also offered for bid at its website, and they may qualify for FHA 203(k) mortgage financing.
FHA 203(b) Home Appraisals
If you buy a home using an FHA 203(b) loan, it will have to undergo an FHA-specific home appraisal. FHA 203(b) home appraisals are used to ensure that homes being purchased by eligible homebuyers meet agency guidelines for safety and security. For example, an appraiser conducting FHA 203(b) home appraisal will examine the home’s electrical system to ensure it’s safe. Typically, minor repairs identified on an FHA 203(b) home appraisal must be completed prior to the homebuyer closing on her loan.
FHA 203(k) Home Appraisals
A home appraisal for an FHA 203(k) loan takes into account a home’s post-rehabilitation projected value. For instance, you might find a rundown home listed at $80,000 and in need of another $80,000 in repairs. Your FHA 203(k) loan’s home appraisal will determine if your rundown home will actually be worth $160,000 after its rehabilitation. Depending on the FHA 203(k) mortgage lender, an “as-is” value appraisal of your rundown home may be required in addition to its projected post-rehab value appraisal.
Difference Between 203k and 203b.