The FHA 203(k) program is different than most other home mortgage financing options in that the 203(k) loan accounts for the value that the house is *going to be worth* once repairs are done.
There are 3 eligible situations where an FHA 203(k) mortgage can be done:
- To purchase a house on a plot of land and rehabilitate it (the most common)
- To purchase a house on another site, move it onto a new foundation on the mortgaged property and rehabilitate it (less common)
- To refinance an existing mortgage and rehabilitate such a dwelling (also less common)
Without the 203(k) program, if you wanted to buy a house that needed repairs (the most common situation) or you just wanted to modernize the house – you would first have to obtain a mortgage on the as-is condition and value of the home, go out and find additional financing (HELOC, 2nd mortgage, your mother-in-law), improve the house and then get your ideal long-term mortgage in place.
