203(k) Mortgage Rehabilitation Program

The Department of Housing and Urban Development (HUD) offers a loan program which encourages the purchase of historic properties in need of restoration: the 203(k) Mortgage Rehabilitation Insurance Program. 203(k) loans have been available since 1961, but improvements in its design now make it more attractive to use.

When an older home needs significant repair, a buyer must often secure two mortgages, on for the purchase price and a second, at a higher rate, for the repairs: two closings, with attendant costs. 203(k) offers the advantage of covering both acquisition and rehab costs. It also addresses the problems of appraisal barriers and prohibitive down payment and closing costs. The program applies to one-to-four family dwellings at least one year old which need at least $5,000 in repairs. Virtually any repairs qualify except luxury items. This includes conversions from single occupancy to multi-unit or the reverse.

Eligible applicants include owner-occupants, local governments or non-profit organizations. After rehabilitation the building can be occupied by the owner, rented or resold. The down payment is low-3% or the first $25,000 and 5% of the balance-and closing costs can be wrapped into the mortgage.

Money to cover the rehabilitation is escrowed at closing and disbursed by the lender directly to the contractor. All work must be inspected and approved, so contractors must be able to wait at least two weeks for payments.

These are 30 year fixed rate mortgages, but because of the extra costs of administering them lenders ask about 1.5% more that the market rate.

Note: HUD regulations require that minimum code standards be met, and this may conflict with preservation interests. Be sure to enlist the aid of the Connecticut Trust and local preservationists if the building is threatened with the loss of important features.

Learn more about the 203(k) program from HUD's Web site - link is provided below.

HUD - 203(k) Mortgage Rehabilitation Program