Mortgage your home restoration

Buying and restoring a historic home might be easier than you think. If you can qualify for a mortgage, you might be able to get financing for the restoration as well, under Section 203(k) of the National Housing Act (NHA). This legislation makes it easier for buyers to stay in the historic market of their choice, and find a home to suit their needs.

The 203 (k) program differs from other mortgages because it provides financing beyond the cost of the house or property. In most cases, upgrades to a property must be completed before the mortgage is made, in order to provide adequate loan security to the lender - this might require a buyer to find a high interest interim loan for their restoration after acquiring a property. With the 203 (k) program, a buyer can have just one mortgage at a long-term rate, covering both the purchase and rehabilitation of a property. These mortgages are based on the projected value of the property after the upgrades, taking into account the cost of the work.

Lenders can minimize their risk under the 203 (k) program by having their mortgage endorsed by the Department of Housing and Urban Development as soon as proceeds are disbursed and the mortgage escrow created.

A wide variety of property types are eli gable for 203 (k) financing, but some form of residential use on the property is required. Eligible properties must also be at least one year since completion, and all newly constructed units must attach to the existing building. For a mixed use property to qualify, only a certain percentage of it may be used commercially, and upgrade funds must only be used for the residential parts of the building, or areas used to access the residential sections. One story buildings eligible for 203 (k) financing are limited to 25 per cent commercial use, while two story buildings are limited to 49 per cent, and three story buildings are limited to 33 per cent. The purchase and upgrade of an owner occupied condominium unit can also be financed through a 203 (k) mortgage, as long as renovations are limited to the interior of the unit. Demolished or razed homes may even qualify, providing some of the existing foundation remains in place.

Finding a lender for a 203 (k) mortgage isn't difficult. The program is designed to minimizes risk to lenders, while providing ample opportunity for buyers to increase the value of their home and preserve historic areas. As a result, many 203 (k) borrowers are able to pay back their mortgages faster than traditional mortgage borrowers.

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