Real Estate Influencers Say There's a Program That Lets You Buy a Home and Pause Mortgage Payments for a Year. It's True — But There's a Catch. Buying a fixer-upper? Some experts suggest looking into the FHA's 203(k) Rehabilitation Mortgage Program. Here's what to know.
By Erin Davis
Key Takeaways
- New updates to the FHA's 203(k) Rehabilitation Mortgage Program have extended the pause in mortgage payments for 12 months.
- Viral videos are highlighting the program on social media.
- An expert with more than 40 years of experience in the mortgage industry tells Entrepreneur that, while the program is real, there are several caveats.
Homeownership is still a dream for many Americans, but the high prices (average home prices are up 2.6% year over year, per Zillow data), and high mortgage rates (6.72% for a 30-year loan at press time, per Bankrate) of today's real estate market are keeping it just that — a dream.
That's why so many social media posts touting a "new" program where you can pause mortgage payments for 12 months through a Federal Housing Administration (FHA) loan, keep popping on your feed. In one video that has since gone viral, a Utah-based real estate investor notes that a "game-changing update" to the FHA's 203(k) Rehabilitation Mortgage Program means that "buyers can now purchase a fixer-upper with no mortgage payments for up to 12 months."
Related: Barbara Corcoran Says This Is the One Question to Ask Before Selling Your Home
"That means you can renovate before your first bill is due, making homeownership more affordable for those who want to buy a home that needs work," he continues. "This is huge for first-time buyers who want to build instant equity and investors looking to flip or create rental income without the pressure of immediate payments."
But is there a catch?
Melissa Cohn, a 43-year mortgage industry veteran and the regional vice president of William Raveis Mortgage, tells Entrepreneur that, while it is a "real program," there are a few caveats.
The program is "only for people who are purchasing a home as a primary residence," Cohn says, adding that the program is not at the borrower's discretion. Instead, it's determined by the HUD counselor.
And the "catch" is that you are still paying it — just not until the reno is over.
"The payments are not paused," Cohn said. "They are still owed, but get added to the total loan amount."
Related: Barbara Corcoran Says She Doesn't Look at Resumes: 'Always Hire Attitude Over Experience'
Finally, the "monthly payments can only be deferred while the house is uninhabitable," she said.
Meanwhile, Nadia Evangelou, National Association of Realtors senior economist and director of real estate research, told Newsweek that this loan has been around for many years.
"What's new – is that HUD extended the period for financing mortgage payments from six months up to 12 months," Evangelou told the outlet. "This loan helps buyers to have some cash flow during renovations, but they will need to pay these mortgage payments in the long run."
