The Federal Housing Administration (FHA) helps consumers to obtain affordable home improvement loans by insuring loans made by private lenders to improve properties that meet certain requirements.

In particular, HUD's 203(k) program can help a borrower to obtain a loan. The FHA-insured 203(k) loan is provided through approved mortgage lenders nationwide and is available to persons wanting to improve or remodel a home.

The down payment requirement for an owner is approximately 3% of the repair costs of the property. The interest rate and discounts on the loan are negotiable between the borrower and the lender. The government does not interfere with these negotiations. The list of participating lenders can be found at http://www.hud.gov/ll/code/llslcrit.html.

The homebuyer, after selecting an FHA-approved lender, arranges for a detailed proposal showing the scope of home improvement project. An appraisal is performed to determine the value of the property both before and after renovation. If the borrower is considered a credit-worthy person, then the loan closes for an amount that will cover the cost of the improvement of the property, in addition to other closing costs. The amount of the loan will also include a contingency reserve up to twenty percent of the total remodeling costs; the contingency reserve is used to protect any extra work not included in the original project. The funds are released to the contractor during construction checks as the work is being completed. The borrower can decide to have up to six mortgage payments. To ensure completion of the work, ten percent of each payment is reserved and is paid after the lender determines that there will be no liens on the home.

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