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FHA 203(k) Loans in Washington: The ‘Fixer-Upper’ Home Financing Option

For buyers who are purchasing a “fixer-upper” home in Washington State, financing can sometimes be a challenge. That’s because many home buyers in this situation actually need two kinds of loans — one to purchase the property, and one to cover the cost of rehabbing it.

The FHA 203k program was designed with these challenges in mind. It allows home buyers in Washington to buy a fixer-upper and rehab it, all with one loan.

But how does FHA 203k work, and how might you as a home buyer benefit from using this loan program? Here’s what you should know.

FHA 203k: Rehab Loans for Washington Home Buyers

Using two separate loans to purchase and renovate a fixer-upper can be time-consuming. There’s more paperwork to do, more underwriting and screening, etc. Also, you might end up paying more in total interest since you’re paying it on two different loans.

It’s in cases like this where the FHA 203k loan program can be useful.

This program is managed by the Federal Housing Administration, which falls under HUD. It’s similar to the “regular” FHA loan program that’s popular with home buyers, but it goes beyond that by providing funds for renovation and rehab.

According to the HUD website: “Section 203(k) insurance enables homebuyers and homeowners to finance both the purchase (or refinancing) of a house and the cost of its rehabilitation through a single mortgage.”

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Key features and requirements of this program:

  • The FHA 203k program is generally limited to properties that are at least one year old, according to HUD.
  • The bulk of the loan amount is used to pay off the seller, in a purchase scenario (or to pay off the existing mortgage in a refinancing scenario).
  • The rest of the funds are usually put into a special escrow account, and paid out as needed to complete the home renovation / rehab work.
  • The total value of the home must still fall within the FHA loan limit for the Washington county in which the property is located.
  • In the context of FHA 203k loans, the value of the property can be determined in two ways. It an be the lesser of (A) the property value before rehab plus the cost of the work, or (B) 110% of the appraised value after rehabilitation.

Benefits of the Program

We’ve touched on one of the primary benefits of the FHA 203k loan program already. It’s simplicity. By using one source of funding to both purchase and rehab a fixer-upper home in Washington, borrowers can save time and paperwork hassle.

They might save money as well, by paying interest on only one loan instead of two.

This is one of the only mortgage financing programs that allows home buyers to purchase a home in need of work. With a “standard” or conventional mortgage loan, the property will be evaluated to ensure that it’s both livable and marketable. Most fixer-upper properties would not meet this standard. With FHA 203k, Washington home buyers can purchase such a property and then make it livable.

This program has been around for many years. As a result, most housing professionals are familiar with it and know how to operate it within its parameters. This is true for mortgage companies as well as general contractors and construction folks.

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Have questions? Sammamish Mortgage is a local, family-owned company based in Bellevue, Washington. We serve the entire state, as well as the broader Pacific Northwest region. Please contact us if you have mortgage-related questions.

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