can someone explain how 203K loan work?

203K Loan is an Government Backed loan requiring a minimum Down Payment of 3.5%. I suggest that prior to finding a home when you identify a lender ask them to give you the upfront disclosures and paperwork for a 203K loan. As yourself and the licensed contractor have about 7 - 10 forms to fill out. Also it would be best to interview contractors now, because the process of getting paid is a little different and there are time constraints on finishing the project. If you e-mail me i can send you a presentation I usually give to my borrowers to give them an idea of how this program works. mmason@primeres.com

Since you are looking for a refinance, the FHA 203(k) home loan or the FHA 203(k) streamlined home loan is used for home renovations. The streamlined 203(k) is for renovations less than $35,000 that are non-structural. Any structural renovations would utilize the standard 203(k) home loan. The best part of the 203(k) loan is that it is not considered a cash-out transaction and consequently are not penalized like other home equity/renovation loans. There are definitely other pros, as well cons, for the 203(k). If you're home is located in Indiana or Illinois, contact me for more information.