The 203K rehabilitation mortgage is an FHA program, which is meant to help borrowers rehab their home or the home they purchase with one loan program. But, just like standard FHA loans, the 203K loan is only eligible for a primary residence, investors may not use this program to flip or fix up a home. You must be able to prove residency in the home you wish to finance with the 203K program in order to qualify.
The Reason Behind FHA Mortgages
The FHA does not insure mortgages for anyone that is doing anything besides occupying a property because the entire premise behind the program is to help people become homeowners. The FHA program began in 1934 as a way to regulate the mortgage industry and make it easier for certain people to own homes. This was during a time that lending restrictions were tight and thousands of people were losing their homes. With so many people without homes, the economy would have suffered even more than it did. With the FHA stepping in, more people were able to purchase a home to live in, which in turn, boosted the economy. To this day, the FHA stays strong to their desire to help people own a home to live in, but not to become investors.
What if a Spouse Applies for the 203K loan as an Investor?
People have tried all different types of ways to get around the FHA requirements that the 203K loan only be used for the primary residence. This includes having a mortgage holder’s spouse apply for the loan so that they can purchase that home as their owner occupied property. The FHA rules state, however, that any person that owns a home either directly with their spouse, or indirectly through marriage, cannot purchase another home as an owner-occupied property with FHA financing, taking away the chance to use FHA financing on an investment property.
Getting Around the Requirements
The only way around the 203K requirements is to purchase a 2 to 4 unit property. If this were the case, and you can prove that you are going to or do occupy one of the units as an owner occupied property, you can then use the 203K for an investment property, so to speak. This is an owner occupied property that you are able to rent out a few units in order to make some money. In this case, the FHA will back the loan as long as the property meets the FHA guidelines, of which most important is that there are not more than 4 units in the property.
The FHA 203K program was not meant for investors, so the lender and the FHA will do whatever it takes to determine that you are not using the property as an investment, even if that means purchasing the home and living in it while the work is done and then turning around and selling it for a profit. Even if you are able to do that one time, if you have a history of it, your lender will catch on and you will not be eligible for 203K financing. There are other mortgage programs, such as the Fannie Mae Homestyle program which can allow you to purchase a home to fix up as an investment property. The FHA 203K loan, on the other hand, is the only loan that allows you to wrap the costs of the renovations into the one loan and close on it before the work is complete, even if the home does not pass code in your area. The 203K loan offers you many abilities that any other loan does not offer.