The Department of Housing and Urban Development (HUD) introduced the Section 203(k) rehab loan program in 1978 to allow buyers to purchase and finance a home -- typically a fixer-upper -- and include in the loan the cost of making repairs and improvements. The 203(k) also may be used to refinance an existing mortgage and the rehabbing of that home. More information: Go to www.hud.gov/offices/hsg/sfh/203k/sfh203kc.cfm.
Standard 203(k) Program
This loan requires a HUD consultant and is used for more costly major renovations and structural repairs.
Streamlined 203(k) Limited Repair Program
The Streamlined 203(k) came out in 2000, with modifications in 2005. It's a popular loan program for first-time home buyers who need money to make repairs after they close on a home. It includes:
• Repairing or replacing roofs, gutters, windows, plumbing, electrical, flooring, painting and updating a kitchen or bathroom and refinishing a basement. Major renovation or remodeling and luxury items, such as a swimming pool, are not eligible.
• Maximum loan amount is $35,000.
• Potential buyers find a fixer-upper and work with their real estate agent to draw up a sales contract and find an FHA-approved 203(k) lender.
• The buyer is required to put down 3.5 percent of the acquisition and repair costs of the home to get an FHA mortgage.
• At closing, the seller is paid off and the remaining funds are put in an escrow account to pay for the repairs and improvements during the rehab period.
• The work must be completed by a licensed contractor within six months. (Lenders may require less than six months and some allow owners to paint and do other minor cosmetic work.)
The Minnesota Housing Finance Agency's (www.mnhousing.gov) Minnesota Fix-Up Fund offers low-interest, fixed-rate home improvement loans for people who currently own a home. You can hire a contractor or do the work yourself. Income requirement is $96,500 or less and the maximum loan amount is $35,000.
The Minnesota Home Ownership Center (www.hocmn.org) gives information and counseling on a variety of home buying loan products, such as the 203(k), and a list of qualifying lenders.