This question appears every now and then to real estate investors, “Can I use the FHA 203(k) loan program to buy and rehabilitate a property?”  The FHA has a special program that allows buyers to finance both the acquisition of a property in need of repairs as well as the funds needed to make those fha 203(k) loan for investorsrestorations. It’s a unique program and one that fits a real estate niche like no other program can.

When properties fall into such a state of disrepair that a traditional bank won’t place a long term mortgage on the property, either a private lender or a 203(k) loan can work. The FHA program allows for a down payment of only 3.5 percent with competitive mortgage rates while private loans will have higher rates and fees and are only used for the short term. Yet all FHA loans, including the 203(k) program, are designed for those who intend to occupy the property and cannot be used to finance the acquisition and rehabilitation of a rental home.

That is unless the investor buys a 2-4 unit project and lives in one of the units. Doing so means getting some of the most competitive rates in the industry leveraging up to 96.5% of the as-repaired value of the home. In the case of a four unit property, the investor can not only have the other three tenants pay rent that will more than cover the mortgage, taxes, insurance and maintenance costs, but provide a monthly income beyond those expenses as well. FHA 203(k) loans are more difficult to find as fewer FHA lenders offer the program. But once an experienced FHA lender is located and you intend to live in one of the units, this program is very hard to beat.