FHA 203K – Limited & Consultant

 

FHA 203(k) Loans – Purchase and Refinance

A Renovation Loan “203k” lets you purchase or refinance and rehabilitate a property with one loan, one approval process and one payment. The projected rehabilitation costs are held in an escrow account established by the Lender and disbursed as work is completed and inspected.

The max loan amount is based on the Lessor of:

  • 110% of the projected value AFTER all repairs are completed (or)
  • sales price plus renovation costs

The renovation budget will include labor, material, permit costs, inspection fees, up to 6 months of financed mortgage payments, and a contingency reserve fund of at least 10% (up to 20%) to cover unforeseen repairs during the renovation phase.

Some benefits of using a 203(K) Renovation Loan:

  • You can purchase a home that does not require repairs and finance the cost of “modernization” or cosmetic repairs
  • The loan enables you to purchase distressed properties that require repairs including Short Sales and Foreclosure properties that are sold in As-Is condition to cash only buyers
  • Properties in “below-average” condition can be upgraded through repairs and maintenance
  • Where zoning allows, a Renovation Loan can be used to convert a single family dwelling to 2-4 units and vice versa.
  • Up to six months of PITI (principal, interest, tax and insurance) payments can be financed to assist those who would otherwise be required to make double-housing payments.
  • A Renovation Loan can be used for complete reconstruction of a home on its original foundation
  • Increase square footage by building an addition, building a second floor or finishing a basement or attic space
  • Make Improvements for accessibility for persons with disabilities

A “203K” loan has become the slang term for all renovation loans however it is actually the name of the FHA Renovation Loan. An FHA 203K is available for Owner-Occupied primary residence transactions only and has looser credit requirements allowing lower credit scores with expanded debt to income ratios up to 55% with as little as 3.5% down payment on a purchase and little to no out of pocket expenses upfront on a 203K Renovation Refinance.

The FHA 203K Renovation Loan can be completed under either a Limited 203K Loan or a Consultant 203K Loan. Choosing which loan suits you best will depend on the amount and type of improvements the property needs.

Standard (Consultant) 203(k) Eligible Improvements include, but are not limited to:

  • Converting a one-family Structure to a two-, three- or four-family Structure;
  • Decreasing an existing multi-unit Structure to a one- to four-family Structure;
  • Reconstructing a Structure that has been or will be demolished, provided the complete existing foundation system is not affected and will still be used;
  • Repairing, reconstructing or elevating an existing foundation where the Structure will not be demolished;
  • Purchasing an existing Structure on another site, moving it onto a new foundation and repairing/renovating it;
  • Making structural alterations such as the repair or replacement of structural damage, additions to the Structure, and finished attics and/or basements;
  • Rehabilitating, improving or constructing a garage;
  • Eliminating health and safety hazards that would violate HUD’s Minimum Property Requirements (MPR);
  • Installing or repairing wells and/or septic systems;
  • Connecting to public water and sewage systems;
  • Repairing/replacing plumbing, heating, AC and electrical systems;
  • Making changes for improved functions and modernization;
  • Making changes for aesthetic appeal;
  • Repairing or adding roofing, gutters and downspouts;
  • Making energy conservation improvements;
  • Creating accessibility for persons with disabilities;
  • Installing or repairing fences, walkways, and driveways;
  • Installing a new refrigerator, cooktop, oven, dishwasher, built-in microwave oven, and washer/dryer;
  • Repairing or removing an in-ground swimming pool;
  • Installing smoke detectors;
  • Making site improvements;
  • Landscaping;
  • Installing or repairing exterior decks, patios, and porches;
  • Constructing a windstorm shelter; and
  • Covering lead-based paint stabilization costs, if the Structure was built before 1978, in accordance with the Single Family mortgage insurance lead-based paint rule and the U.S. Environmental Protection Agency’s (EPA)

 

Standard 203(k) Ineligible Improvements/Repairs

The 203(k) mortgage proceeds may not be used to finance costs associated with the purchase or repair of any luxury item, any improvement that does not become a permanent part of the subject Property, or improvements that solely benefit commercial functions within the Property, including:

  • Recreational or luxury improvements, such as:
    • swimming pools (existing swimming pools can be repaired)
    • an exterior hot tub, spa, whirlpool bath, or sauna
    • barbecue pits, outdoor fireplaces or hearths
    • bath houses
    • tennis courts
    • satellite dishes
    • tree surgery (except when eliminating an endangerment to existing
    • improvements)
    • photo murals
    • gazebos; or
  • Additions or alterations to support commercial use or to equip or refurbish space for commercial use.

Limited 203(k) Eligible Improvements include, but are not limited to:

  • Eliminating health and safety hazards that would violate HUD’s MPR;
  • Repairing or replacing wells and/or septic systems;
  • Connecting to public water and sewage systems;
  • Repairing/replacing plumbing, heating, AC and electrical systems;
  • Making changes for improved functions and modernization;
  • Eliminating obsolescence;
  • Repairing or installing new roofing, provided the structural integrity of the Structure will not be impacted by the work being performed; siding; gutters; and downspouts;
  • Making energy conservation improvements;
  • Creating accessibility for persons with disabilities;
  • Installing or repairing fences, walkways, and driveways;
  • Installing a new refrigerator, cooktop, oven, dishwasher, built-in microwave oven and washer/dryer;
  • Repairing or removing an in-ground swimming pool;
  • Installing smoke detectors;
  • Installing, replacing or repairing exterior decks, patios, and porches; and
  • Covering lead-based paint stabilization costs if the Structure was built before 1978

Limited 203(k) Ineligible Improvements/Repairs

The Limited 203(k) may only be used for minor remodeling and non-structural
repairs. The total rehabilitation cost may not exceed $35,000. There is no minimum repair cost.

The Limited 203(k) mortgage proceeds may not be used to finance major rehabilitation or major remodeling. FHA considers a repair to be “major” when any of the following are applicable:

  • the repair or improvements are expected to require more than six months to complete;
  • the rehabilitation activities require more than two payments per specialized contractor;
  • the required repairs arising from the appraisal:
    • necessitate a Consultant to develop a specification of repairs/Work Write-Up; or
    • require plans or architectural exhibits; or
  • the repair prevents the Borrower from occupying the Property for more than 15 Days during the rehabilitation period.

Additionally, the Limited 203(k) mortgage proceeds may not be used to finance the following specific repairs:

  • converting a one-family Structure to a two-, three- or four-family Structure;
  • decreasing an existing multi-unit Structure to a one- to four-family Structure;
  • reconstructing a Structure that has been or will be demolished;
  • repairing, reconstructing or elevating an existing foundation;
  • purchasing an existing Structure on another site and moving it onto a new foundation;
  • Making structural alterations such as the repair of structural damage and new construction, including room additions;
  • Landscaping and site improvements;
  • Constructing a windstorm shelter;
  • Making additions or alterations to support commercial use or to equip or refurbish space for commercial use; and/or
  • Making recreational or luxury improvements, such as:
    • new swimming pools;
    • an exterior hot tub, spa, whirlpool bath, or sauna;
    • barbecue pits, outdoor fireplaces or hearths;
    • bath houses;
    • tennis courts;
    • satellite dishes;
    • tree surgery (except when eliminating an endangerment to existing improvements);
    • photo murals; or
    • gazebos.

Call me today to discuss your Renovation Loan Options at 916-235-3989 – I have been helping clients with mortgage loan needs since 1999 and I specialize in FHA 203K Renovation Loans in California! (Read More about Sheri here)

Sheri McLaughlin – NMLS#448414