The Department of Housing and Urban Development (HUD) just announced that the Federal Housing Administration (FHA) will be increasing the 203k rehabilitation loan limit by $15,000 for owner-occupants whose home resides in a designated Opportunity Zone (OZ) starting December 16, 2019.
What is a 203k loan?
An FHA 203k loan is a special loan program that allows homeowners to include renovation costs in their mortgage. Originally borrowers who qualified could receive $35,000 toward renovation expenses to be rolled into their mortgage. This recent change to the program allows properties in qualified OZs to receive up to $50,000 in qualified renovation expenses.
Who qualifies for the increased loan limits?
To qualify for the increased loan limits of the 203k program, the property must:
- Be located in a qualified opportunity zone.
- Be an owner-occupied residence (not available for investors unless they live in one unit and rent additional units out).
- Require minor to midsize renovations.
As with most programs, there are certain limitations:
- The total loan amount may not exceed 110% of the property's after-repair value (ARV).
- It is only available to the first 15,000 people each calendar year, expiring on Dec 31, 2028.
- Repairs must be minor, such as upgrading electrical, plumbing, or roof, and cannot include large repairs such as structural damage.
This incentive is being enacted as part of the Tax Cut and Jobs Act (TXJA) as a way to support some of our country's most rural and distressed areas. While the 203k loan program may not make sense for everyone, it can be a great option for anyone who owns a home in an OZ that would like to make improvements to their property or is in the market for a primary residence in an OZ.
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