With a 203(k) loan, home buyers are able to take out one loan for the purchase and improvement of a property. As with the popular FHA home loan program, borrowers can make only a minimal downpayment. Another plus: With only one loan, there’s only one set of closing costs. And once the loan closes, the homeowner then has the funds to immediately begin repair or renovation work.
There are a number of requirements borrowers must meet before and after closing this type of loan. Renovation funds, for example, are held in escrow to pay for work done by approved contractors. Improvements, which must be mapped out in the application process, can be simple repairs and updates or more complicated projects that require structural changes. But they have to be done by qualified workers that obtain the necessary permits. Homeowners also must start and complete repairs and upgrades within the time frame outlined in the loan agreement.