Homebuyers on a Budget: It's About to Become Easier to Purchase a Fixer-Upper Home
It’s about to become a little easier for buyers hoping to save a few bucks by purchasing a fixer-upper.
The U.S. Department of Housing and Urban Development announced this week that it is making changes to the FHA 203(k) loan. The Federal Housing Administration program allows borrowers to include the cost of home repairs in their FHA mortgage.
The changes will allow qualifying buyers to borrow more money to put toward repairs and renovations. They will be eligible to finance up to $75,000 for repairs and renovations, up from $35,000.
The changes will go into effect on November 4, 2024.
The Limited 203(k) program is for projects that don’t include structural improvements. This allows borrowers to use the funds for renovations to kitchens, bathrooms, flooring, roofing, and more. It also allows for energy-efficient upgrades or any necessary safety or health-related improvements.
The updates to the program “are long overdue and will support greater use of this program where it is needed most—in neighborhoods where homes are affordable but need repair,” said Federal Housing Commissioner Julia Gordon in a statement. “Increased use of 203(k) mortgages will help modernize and revitalize homes, which supports affordable housing supply and strengthens neighborhoods.”
As homebuyers are navigating high home prices, elevated mortgage rates, and a limited number of properties for sale, more than half said they would consider purchasing a fixer-upper, , according to a RE/MAX survey conducted late last year. Most would do so to save money.
The change to the Limited 203(k) program will allow borrowers to finance an additional $40,000 in renovations. This may encourage them to take on larger projects as well as homes that may require pricier improvements.
HUD will also begin reviewing the maximum allowable amount under the Limited 203(k) program to “ensure it continues to keep pace with market conditions,” according to the agency’s announcement.
Beyond that change, HUD also stated that it will be increasing the amount of time allowed for the rehabilitation and repair work to be completed from six months to 12 months for the Standard 203(k) program. This allows for major structural repairs.
The timeline for the Limited 203(k) program is also being extended from six months to nine months.
The updates will also allow borrowers to roll the 203(k) consultant fee in the total mortgage amount for the Limited 203(k). These professionals often inspect the property, work on feasibility studies, provide cost estimates, and make sure the finished improvements are FHA compliant.
The agency stated these changes are expected to “meaningfully increase usage” of the 203(k) program.
“HUD has programs not only to help families purchase a house, but to help them repair their homes,” HUD Acting Secretary Adrianne Todman said in a statement.
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