How Does A 203K Work?

Will a 203k loan help Melanie and her husband fix up and move into their first house?

QUESTION: Melanie and her husband are first-time homebuyers. They found a place that they like, but it needs some work that they can’t afford. Their real estate agent told them a 203k mortgage loan might help them. What is that?

ANSWER: The 203k mortgage is an FHA loan for doing rehab work. They loan you the money to buy the house and also the work money to fix the house as you need it. Then you owe the grand total. The concept is that you get the rehab money and the money to buy. The danger is that if you don’t get the work done because of some life occurrence like a job loss or sickness, you’ve got a disaster on your hands. For that reason, I don’t like them. They are a cool idea, but when bad things in life happen, it gets you. Get in a financial position to do a rehab and then do it. You’re not ready to buy this house.