203k Repair Programs
1. May be used for purchase or refinance of one-to-four (single family) residences, including HUD REO properties 2. May be either Fixed or Adjustable rate mortgages 3. Combines the funds to purchase or refinance (pay off existing liens) along with the funds needed to repair/rehabilitate the property. Repairs are completed after closing. (NOTE: Cannot do a Cash-Out Refinance) 4. One closing, with rehabilitation funds escrowed and disbursed as the work is satisfactorily completed 5. Can be used to update homes, correct health and safety issues, pay for higher cost items such as a roof, etc. 6. Property value must be sufficient to purchase/refinance and complete the rehabilitation 7. Property must be 100% complete or equivalent document and must be at least one (1) year old. (EXCEPTION: Presidentially declared disaster areas for one (1) year after the disaster) 8. Borrower and credit eligibility same as for other programs (No Investors, including REO sales) STREAMLINED (K) 1. No minimum threshold; maximum is $35,000, includes the 10% contingency 2. Appraisal is completed as “Subject To” 3. Minimum 10% Contingency 4. Consultant (and plan) is not required; General contractor is not required 5. Lender is responsible for ensuring that the cost of the repair is reasonable and customary for the area in which the property is located 6. Preparation of architectural exhibits (as listed in Handbook 4240.4 REV-2, Paragraph 3 – 2) is not required 7. Helps address the repair issues that could delay/prevent the sale or refinance ELIGIBLE IMPROVEMENTS INCLUDE 1. Repair/Replacement of roofs, gutters and downspouts 2. Repair/Replacement/upgrade of existing HVAC systems 3. Repair/Replacement/upgrade of plumbing and electrical systems 4. Repair/Replacement of flooring 5. Minor remodeling, such as kitchens, which does not involve structural repairs 6. Painting, both exterior and interior 7. Weatherization, including storm windows and doors, insulation, weather stripping, etc. 8. Purchase and installation of appliances, including free-standing ranges, refrigerators, washers/dryers, dishwashers and microwave ovens 9. Accessibility improvements for persons with disabilities 10. Lead-based paint stabilization or abatement of lead-based paint hazards 11. Repair/replace/add exterior decks, patios, porches 12. Basement finishing and remodeling, which does not involve structural repairs 13. Basement waterproofing 14. Window and door replacements and exterior wall re-siding 15. Septic system and/or well repair or replacement INELIGIBLE IMPROVEMENTS INCLUDE 1. Major rehabilitation or major remodeling, such as the relocation of a loadbearing wall 2. New construction (including room additions) 3. Repair of structural damage 4. Repairs requiring detailed drawings or architectural exhibits 5. Landscaping or similar site amenity improvements 6. Any repair or improvement requiring a work schedule longer than three (3) months; or Rehabilitation activities that require more than two (2) payments per specialized contractor. That would necessitate a “consultant” to develop a “Specification of Repairs/Work Write-Up” 7. Require plans or architectural exhibits 8. Require a plan reviewer 9. Result in work not starting within 30 days after loan closing; or cause the mortgagor to be displaced from the property for more than 30 days during the time the rehabilitation work is being conducted. (FHA anticipates that, in a typical case, the mortgagor would be able to occupy the property after mortgage loan closing) DOCUMENTATION 1. Contractor to provide a resume and two references (Prior to Close) 2. A copy of the contractor’s cost estimate(s) and the Homeowner/Contractor Agreement(s) (Prior to Close) 3. Rehabilitation cost estimate (At Close) 4. 203k Loan Agreement (At Close) 5. 203k Rider (At Close) 6. Mortgagors Letter of Completion (At Close) MORTGAGE CALCULATION 1. The lesser of: A. Maximum (statutory) mortgage limit for area B. “As is” value (usually the purchase price or outstanding debt in case of a refinance transaction) plus cost of rehabilitation C. 110% of “After Improved” value; Condominiums limited to 100% of “After Improved” value. D. If the borrower has owned the property for less than one year, the acquisition cost must be used to determine the maximum mortgage amount. CONTRACTORS AND REHABILITATION CRITERIA 1. Must use contractors to complete repairs/rehabilitation (unless borrower can demonstrate needed expertise/experience) 2. Use of contractors: A. Borrower selects contractor B. Contractors provide estimates for the work to be done, if applicable C. Lender must review the contractor’s credentials verifying jurisdictional requirements for licensing, bonding & insurance are met (need copy of all these docs) D. The cost estimate(s) must clearly state the nature and type of repair and the cost for completion of the work item E. The lender will review the work plans and estimates with the borrower F. The lender may require the mortgagor to provide additional cost estimates if necessary 3. Borrower(s) to complete work – Lender must document that: A. The borrower has the necessary expertise and experience to complete the work in a satisfactory (workmanlike) manner (ie: borrower is a licensed plumber and will complete that portion of the work) B. The work can be completed in a timely manner C. A “self-help” agreement is executed by the borrower and lender D. The cost of labor is included in the repair/rehabilitation cost (in case the borrower is unable to complete the work and a contractor must be hired). The mortgagor may not be compensated for his/her labor. E. Estimates of the repair/rehabilitation costs F. The borrower has provided written estimates from the suppliers of the materials that the mortgagor will purchase G. “Cost plus” or “time and material” contracts are prohibited 4. The Rehabilitation Construction Period begins when the mortgage loan is closed
