Section 203(k) insurance enables homebuyers and homeowners to finance both the purchase (or refinancing) of a house and the cost of its rehabilitation through a single mortgage or to finance the rehabilitation of their existing home.

Section 203(k) is one of many FHA programs that insure mortgage loans, and thus encourage mortgage companies to make mortgage credit available to borrowers who would not otherwise qualify for conventional loans on affordable terms (such as first time homebuyers) and to residents of disadvantaged neighborhoods (where mortgages may be hard to get).

Section 203(k) fills a unique and important need for homebuyers in another way as well. When buying a house that is need of repair or modernization, homebuyers usually have to follow a complicated and costly process, first obtaining financing to purchase the property, then getting additional financing for the rehabilitation work, and finally finding a permanent mortgage after rehabilitation is completed to pay off the interim loans. The interim acquisition and improvement loans often have relatively high interest rates and short repayment terms.

However, Section 203(k) offers a solution that helps both borrowers and mortgage companies, insuring a single, long term, fixed or adjustable rate loan that covers both the acquisition and rehabilitation of a property. Section 203(k) insured loans save borrowers time and money, and also protect mortgage companies by allowing them to have the loan insured even before the condition and value of the property may offer adequate security. For housing rehabilitation activities that do not also require buying or refinancing the property, borrowers may also consider HUD’s Title I Home Improvement Loan program.