The Federal Housing Authority’s 203k
loan program is HUD’s primary program for the rehabilitation and
repair of single-family properties. By offering funds to both
purchase and rehabilitate properties, it is an important tool for
community and neighborhood revitalization efforts and for expanding
homeownership opportunities.
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The 203k is a Federal Housing
Administration (FHA) mortgage insurance program, which enables
homebuyers and homeowners to finance both the purchase (or
refinance) of a house and the cost of its rehabilitation through a
single mortgage, or to finance the rehabilitation of their existing
home. The minimum amount that can be borrowed is $5,000.
The FHA Streamline(k) Limited Repair
Program allows borrowers to finance upgrades and improvements up to
$35,000 in mortgage funds. There is no minimum threshold. Rehab
funds are held in escrow by the lender and disbursed as work is
completed. General contractors and consultants are not required. The
lender is responsible for the feasibility study. All standard FHA
guidelines apply. The property must be 100% complete and at least
one year old.
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The consultant meets with the borrower
at the site to determine if the project is feasible. If the client
and consultant sign an agreement to go forward, the consultant will
prepare a detailed report that includes project specifications, a
construction cost analysis and HUD-required draw request forms. The
consultant will then prepare contractor bid packages and lender
packages. After the loan has been approved, a rehabilitation escrow
account is created. Funds are dispersed after HUD-approved
inspections are complete.
Sample draw request form
When a property is located, the
homebuyer and real estate professional (agent, broker or 203k
consultant) should determine:
-
How much rehab work will be required
-
How much will the rehab and repairs cost
-
How much will the property be worth, once the planned rehab work
is completed. (It is important to know early in the process
whether or not the value of the property will be greater than
the cost of the improvements.)
After the preliminary feasibility
analysis is completed, a sales contract will be executed. Then, the
homebuyer will choose an FHA-approved lender. How much does a 203k
Consultant cost?
While prices may vary slightly, HUD
has established a general fee schedule for 203k consultants based on
the following ranges for repair costs.
|
REPAIR AMOUNT |
CONSULTANT FEE |
|
$5,000 - $7,500 |
$400 |
|
$7,5001 - $15,000 |
$500 |
|
$15,001 - $30,000 |
$600 |
|
$30,001 - $50,000 |
$700 |
|
$50,001 - $75,000 |
$800 |
|
$75,001 - $100,000 |
$900 |
|
$100,001 and up |
$1,000 |
While a 203k Consultant is recommended
for facilitating a 203k loan, a consultant is not needed for a
Streamline(k) loan.
Following is a list of eligible
repairs:
-
Roofs, gutters, and downspouts
-
Upgrade of existing HVAC systems
-
Upgrade of plumbing and electrical systems
-
Flooring
-
Exterior decks, patios, porches
-
Weatherization – including storm windows/doors, insulation,
weather stripping, etc.
-
Purchase and installation of new appliances
-
Disability access improvements
-
Lead-based paint stabilization or abatement of lead-based paint
hazards
-
Basement finishing/remodeling, which doesn’t require structural
repairs
-
Basement water-proofing
-
Window and door replacement
-
Exterior wall re-siding
-
Septic system and/or well repair or replacement
Following is a list of non-eligible
repairs:
-
New constructions including room additions
-
Repair of structural damage
-
Repairs requiring detailed drawings or exhibits
-
Any improvement that will take longer than 3 months
-
Foundation Repairs or new foundations on existing manufactured
homes
-
Pool repairs
-
Landscaping or site-amenity improvements
Construction can begin after the loan
closes and a rehab escrow account has been set up. The homeowner has
up to six months to complete the work. Some lenders may require less
than six months.
Funds are released after the work has
been inspected by a HUD-approved inspector. A maximum of four draw
inspections, plus a final inspection are allowed.
Sample Draw Request form
Yes. After the closing, the borrower
must make mortgage payments on the entire principal amount of the
mortgage, which includes the amount in the escrow account that has
not yet been disbursed.
Your lender must use those funds to
prepay the mortgage principal. There is no cash back to the
borrower.
Some lenders have a preferred list of
contractors that meet their criteria. Be sure to ask your lender
about their contractor criteria before hiring a contractor.
Yes. With a streamline loan, the unit
must be owner-occupied. Rehab is limited to the interior.
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