the rehabilitation construction have to comply with HUD's Minimum
Property Standards? Yes. The improvements must comply with HUD's
Minimum Property Standards (24 CFR 200.926d and/or HUD Handbook
4905.1) and all local codes and ordinances. <back
the Section 203(k) program restricted to single-family dwellings?
The program can be used for one-to-four unit dwellings. Maximum
mortgage limitations are the same as for properties under Section
203(b). <back to top>
Section 203(k) be used to improve a condominium unit?
however, condominium rehabilitation is subject to the following
Owner/occupant and qualified nonprofit borrowers only;
Rehabilitation is limited only to the interior of the unit.
Mortgage proceeds are not to be used for the rehabilitation of
exteriors or other areas which are the responsibility of the condominium
association, except for the installation of firewalls in the attic
for the unit;
Only the lesser of five units per condominium association,
or 25 percent of the total number of units, can be undergoing
rehabilitation at any one time;
The maximum mortgage amount cannot exceed 100 percent of the
after-improved value. After rehabilitation is complete, the individual
buildings within the condominium must not contain more
than four units. By law, Section 203(k) can only be used to rehabilitate
units in one-to-four unit structures. However, this does not mean
that the condominium project, as a whole, can only have four units
or that all individual structures must be detached. Example:
A project might consist of six buildings each containing four
units, for a total of 24 units in the project and, thus, be eligible
for Section 203(k). Likewise, a project could contain a row of
more than four attached townhouses and be eligible for Section
203(k) because HUD considers each townhouse as one structure,
provided each unit is separated by a 1 1/2 hour firewall (from
foundation up to the roof). Similar to a project with a condominium
unit with a mortgage insured under Section 234(c) of the National
Housing Act, the condominium project must be approved by HUD prior
to the closing of any individual mortgages on the condominium
<back to top>
The individual buildings within the condominium must not contain
more than four units. By law, Section 203(k) can only be used
to rehabilitate units in one-to-four unit structures. However,
this does not mean that the condominium project, as a whole, can
only have four units or that all individual structures must be
detached. Example: A project might consist of six buildings
each containing four units, for a total of 24 units in the project
and, thus, be eligible for Section 203(k). Likewise, a project
could contain a row of more than four attached townhouses and
be eligible for Section 203(k) because HUD considers each townhouse
as one structure, provided each unit is separated by a 1.5 hour
a six (or more) unit building be done using the 203(k) program?
No. However, the building could be renovated and reduced to a four
nonresidential (storefront) property be eligible for a 203(k) insured
Mixed-use residential property is acceptable provided the property
has no greater than 25% (for a one story building); 33% (for a three
story building); and 49% (for a two story building) of its floor
area used for commercial (storefront) purposes. The rehab funds
can only be used for the residential functions of the dwelling and
areas used to access the residential part of the property. <back
HUD-owned properties be purchased using the 203(k) loan?
However, the property must be advertised that it is eligible for
financing with a 203(k) loan. If the HUD-owned property is purchased
with other funds, a 203(k) loan can be made after the property is
in the buyers name. In this case, cash back will be allowed to the
borrower for a period of six months from purchasing the HUD-owned
an investor use the 203(k) program?
In October, 1996, the Department placed a moratorium on investor
participation in the 203(k) Rehabilitation Mortgage Program. <back
a local government agency or a nonprofit organization use the 203(k)
The same qualification requirements will be used as for an owner-occupant
of the property. <back to top>
is the definition of a First-Time Homebuyer?
single person or an individual and his or her spouse who have not
owned a home (as a tenant in common or as a joint tenant by the
entirety) during the three years immediately preceding the date
of application for the 203(k) loan. Any individual who is legally
separated or divorced cannot be excluded from consideration, because
the three-year waiting period does not apply, provided the individual
no longer has an interest in the home. <back
there a limitation on how many properties a person or organization
can have in any area of the community?
A borrower can have not more than seven (7) units within a two block
radius of the property they want to purchase. However, if the property
is in a local community area that has been designated for redevelopment
or revitalization, then this seven unit limitation does not apply.
<back to top>
Section 203(k) be used to convert a one family dwelling to a two-,
three-, or four-family dwelling (or vice versa)?
under the Standard (k) program.<back
Section 203(k) be used to move an existing house onto another site?
Yes, under the Standard (k) program, however, release of loan proceeds
for the existing structure on the non-mortgaged property is not
allowed until the new foundation has been properly inspected and
the dwelling has been properly placed and secured to the new foundation.
At closing, funds would be released to purchase the site and the
rest of the mortgage proceeds would be placed in the Rehabilitation
Escrow Account. The borrower would have the site prepared to accept
the dwelling. The first release would be based on the improvements
made to the site, including the installation of the existing structure
on the new foundation. <back to
a detached garage or another dwelling be placed on the mortgaged
under the Standard (k) program, however, a new addition must be
attached to the existing dwelling, and must comply with HUD's Minimum
Property Standards in 24 CFR 200.926d and all local codes and ordinances.
<back to top>
a dwelling be converted to provide access for a disabled person?
A dwelling can be remodeled to improve the kitchen and bath to accommodate
a wheelchair access. Wider doors and handicap ramps can also be
included in the cost of rehabilitation. <back
is the minimum amount of rehabilitation required for a non-streamlined
Section 203(k) mortgage?
is a minimum $5,000 requirement for the eligible improvements on
the existing structure on the property. Minor or cosmetic repairs
by themselves are unacceptable; however, they may be added to the
minimum requirement. Under the Streamlined 203(k) program, a minimum
repair/improvement cost requirement
is not applicable. <back to top>
there a time period on the rehabilitation construction period?
the Rehabilitation Loan Agreement contains three provisions concerning
the timeliness of the work. The work must begin within 30 days of
execution of the Agreement. The work must not cease prior to completion
for more than 30 consecutive days. The work is to be completed within
the time period shown in the Agreement (not to exceed six months);
the lender should not allow a time period longer than that required
to complete the work. <back to
happens if the borrower fails to perform under the terms of the
lender may refuse to make further releases from the Rehabilitation
Escrow Account. The funds remaining in the account can be applied
to reduce the mortgage principal. Also, the lender has the option
to call the mortgage loan due and payable. <back
HUD always require a contingency reserve to cover unexpected cost
yes. On properties older than 30 years and over $7,500 in rehabilitation
costs, the cost estimate must include a contingency reserve. The
reserve must be a minimum of ten (10) percent of the cost of rehabilitation;
however, the contingency reserve may not exceed twenty (20) percent
where major remodeling is contemplated. If utilities were not turned
on for inspection, a minimum fifteen (15) percent is required. <back
the architectural exhibits, including the cost estimate, be modified
after the mortgage loan is closed?
The changes must be approved by HUD or a DE lender prior to beginning
the work. If the change affects the health, safety or necessity
of the dwelling, the contingency reserve can be used to pay for
the change. However, if the health, safety or necessity of the dwelling
is not affected and an increase in cost occurs, the borrower must
apply monies into the contingency reserve fund to pay for the change.
Should the change result in a reduced cost of rehabilitation, the
difference will be placed in the contingency reserve fund; if unused,
it will be applied as a mortgage prepayment after completion of
happens if the cost of the rehabilitation increases during the rehabilitation
the 203(k) mortgage amount be increased to cover the additional
expenses? No. This emphasizes the importance of carefully selecting
a contractor who will accurately estimate the cost of the improvements
and satisfactorily complete the rehabilitation at or below the estimate.
<back to top>
a Section 203(k) mortgage be an Adjustable Rate Mortgage?
An Adjustable Rate Mortgage is available to an owner-occupant only.
Investors and non-profits are not eligible for an ARM. <back
mortgage payments (PITI) be included in the mortgage?
under the Standard (k) program. Up to six months of payments may
be included in the mortgage if the property is not able to be habitable
due to condition of the property during the rehabilitation period.<back
a contractor required to do the work?
However, if the borrower wants to do any work or be the general
contractor, they must be qualified to do the work, and do it in
a timely and workmanlike manner. It is very important that the work
be done in a time frame that will assure the completion of the work
that will be agreed upon in the Rehabilitation Loan Agreement (signed
at closing). A borrower doing their own work can only be paid for
the cost of the materials. Monies saved can be allocated to cost
overruns or additional improvements. <back
cost savings on the rehabilitation be given back to the borrower?
However, the savings can be transferred to cost overruns in other
work items or can be used to make additional improvements to the
property If the cost savings are not used, the money must be applied
to the mortgage principal, but the mortgage payments will remain
the same, because the loan has already closed. To use the cost savings,
it will be necessary for a Change Order to be completed and approved
by the lender. <back to top>
the borrower do their own work write up and cost estimate?
but only under the Streamline (k) program. <back
only one appraisal required to establish the "after-rehab"
value of the property?
provided the lender can be assured that the contract sales price
is reasonable for purchase transactions or the existing debt on
the property is low enough to assure a good equity position of the
HUD-owned - REO Acquisitions, mortgage lenders must order, and the
purchaser(s) may be charged for, an as-repaired appraisal on all
Section 203(k) transactions. If the M&M contractor's as-is appraisal
is more than six months old mortgagees also have the option of ordering
an updated as-is appraisal. However, an as-is appraisal is not mandatory
if the underwriter believes the sales price is equal to the as-is
value. <back to top>
an Energy Efficient Mortgage (EEM) be allowed using the 203(k) program?
A borrower can finance into the mortgage 100 percent of the cost
of eligible energy efficient improvements, subject to certain dollar
limitations, without an appraisal of the energy improvements and
without further credit qualification of the borrower. <back
is a streamline 203k mortgage?
has developed an FHA insured mortgage, called the ?Streamline (K)?
Limited Repair Program that permits homebuyers to finance an additional
$35,000 into their mortgage to improve or upgrade their home before
move-in. With this product, homebuyers can quickly and easily tap
into cash to pay for property repairs or improvements, such as those
identified by a home inspector or FHA appraiser. More...
there a secondary mortgage market for Section 203(k) mortgage loans?
The Government National Mortgage Association (GNMA) permits the
Section 203(k) mortgage to be placed in both GNMA I and II pools
with Section 203(b) mortgages. GNMA accepts the 203(k) mortgage
once it has been endorsed by HUD. The Federal National Mortgage
Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation
(Freddie Mac) will also purchase a Section 203(k) first mortgage.
<back to top>
Section 203(k) be processed under the Direct Endorsement program?
unconditionally approved Direct Endorsement (DE) lenders are eligible
to process Section 203(k) loans without completing any pre-closing
test cases. The Streamlined K Limited Repair Program also does not
require submission of pre-closing test cases for DE lenders with
unconditional approval. <back to
a Direct Endorsement lender who is approved for the 203(k) program
need to be approved in another HUD office?
However, the lender needs to submit their approval to the other
HUD office where they wish to originate 203(k) loans. A preclosing
review in the new HUD office will not be necessary. <back
a DE lender sponsor a correspondent lender to originate 203(k) loans?
The correspondent lender can even use the DE sponsor's staff appraisers,
inspectors and plan reviewer /consultants for processing. <back
to 203(k) home