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Are investors allowed to purchase or refinance residential homes and renovate them using the financing from FHA 203(K) loan programs?

FHA (Federal Housing Administration) currently does not allow real estate investors from participating in any of its insured loan programs. The participation of investors in the section 203(K) mortgage program has been disallowed since 1996. Refer to the mortgagee letter 96-59 for further information.

FHA 203(K) loan program can only be used for the renovation of a primary residence, therefore excluded anyone planning on using the program for renovating a second home or an investment property.

The streamline 203(K) guidelines introduced in 2005 (mortgagee letter 05-50) also exclude financing to investment homes.

Investors who may be buying HUD-owned REO homes are also ineligible under the current FHA loan guidelines.

Investment properties in need of extensive repair work are also ineligible for financing through conventional loan programs insured by Fannie Mae and Freddie Mac.

If an investor is looking to acquire a residential property and then renovate it, their best source of financing would be private hard money lenders. While the interest rates and loan expenses may be on the higher side, the benefits include quicker closing and relaxed qualifying criteria.

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