The FHA 203k “fixer loan” is not an urban legend. It exists right here in Portland.

For years, buyers have been asking me about the possibly mythical FHA fixer loan they had heard about. Like a classic urban legend, everyone seemed to know someone who knew someone who they thought might have used it. I called around and asked, but no one would go on record. No proof of its existence popped up. Until now.

The Pacific Northwest’s own HomeStreet Bank is doing the FHA 203k loan. And they are closing them in approximately 45 days. And, they are not difficult.

In short, buyers who qualify for an FHA loan can get the FHA 203k loan to make improvements to the property they are buying. The loan covers the purchase price amount and the improvement amounts, all with the same great rates and guarantees of a standard FHA loan.

The 203k isn’t limited to major fixers, either. You can use them for new appliances, countertops and cabinets. You can use the 203k for new floors or carpets. New decks and landscaping. New windows and doors.

Of course, you can also use the 203k for major rehab projects, too. And, that is why there are two forms of the 203k loan. There is the “streamline” version, which is limited to projects under $35,000 that do not include structural rehab that would require non-trade permits or plan review. The “standard” 203k is for major structural repairs or any projects totaling over $35,000.

The upside is that you are still getting a low fixed rate FHA loan with just 3.5% down. The seller can still contribute up to 6% for closing costs. You can even refinance your existing mortgage using a 203k loan, which provides a great alternative to home equity lines of credit, which are nearly impossible to get in this market.

The downsides are minimal yet realistic. Your down payment will be a little bit higher since you are getting a bigger loan, but you are financing the work at a low fixed rate. Mortgage insurance is required. Permits must be issued and paid for before close of escrow, but that can be reimbursed out of the loan draw. And, the home must meet FHA basic health and safety standards, like any FHA loan. That means you have to fix the leaky roof if you are putting in the nice new granite countertops.

This is just a summary, and I would happy to talk to any homebuyers who are interested in learning more about how to use this simple and affordable approach to buying homes that need a little work. Give me a call if you would like to know more. I’m always happy to help.