Renovation Financing: What is a 203K loan?

I got an e-mail yesterday asking: What is a 203K loan?  Every once in awhile I need to remember that I sometimes use acronyms and assume everyone knows what I am talking about.  The reality is…in many cases the acronyms do more to confuse folks than to clarify.  So I am going to take a step back and explain a little about the “203K” loan.

This loan program can be used for the purchase or refinance of a property that needs work.  It allows you to borrow the funds you need to purchase and renovate the property.  These loans are not new but took a back seat to other ways of financing the cost to renovate.  With property values no longer increasing by double digits, and with equity loans being capped at 70-80% of current values (rather than 100% you could get just a few years ago), the options for financing renovations are limited.  I started a thread on Zillow asking how folks are paying for home improvements.  Inquiring minds want to know! 

In addition to the FHA 203k program similar programs are offered by Fannie Mae and Freddie Mac.