These are some of the most often asked questions about the 203(k) Rehab Loan. If you have a question or comments, please feel free to contact me direct using the Contact Form

 1. IS THE 203(k) RESTRICTED TO SINGLE-FAMILY DWELLINGS ?
No. The program can be used for one to four unit dwellings, to improve a planned unit development and condos with some limitations. Contact your loan Professional for details

2. CAN THE 203(k) BE USED TO CONVERT A SINGLE-FAMILY DWELLING INTO A MULTI-UNIT DWELLING ?
Yes, with the proper zoning, building permits and provided the converted dwelling does not exceed four legal living units. The 203(K) can also be used to convert multiple units down to four living units and to convert commercial units to residential units, to comply with the program requirements.

4. WHAT ELIGIBLE IMPROVEMENTS ARE ACCEPTED UNDER THE $5000 MINIMUM REHAB REQUIREMENT ?

• Structural alterations and reconstruction i.e., additions to a structure, finishing an attic, termite damage treatment
• Changes for improved function i.e., remodeling kitchens and baths, adding bedrooms, bathrooms, family rooms, garages , carports
• Changes for aesthetic appeal and elimination of obsolescence i.e., new siding, stucco, new windows & doors
•  Reconditioning or installation of new plumbing, heating, air conditioning or electrical system. Out of date electrical system ( old knob & tube ) must be upgraded to a minimum 100 amp service to comply with current code
• Installation or replacement of well and/or septic system
• Remove old and install new roofing, siding gutters & downspouts
• Flooring, tile or carpet
• Installing energy conservation improvements. Adding double-pane windows, insulation, solar domestic hot water systems. Attic insulation, window screens, weather stripping are mandatory
• Major landscaping and site improvement, patios and decks
• Improvements for accessibility to the physically challenged. Elimination of health and safety hazards.

5. IS THERE A MINIMUM AMOUNT OF REHABILITATION REQUIRED ?
Yes. A minimum $5000 must be used for improvements to the property. Any repair is acceptable that would affect the health and safety of the occupants. Minor or cosmetic repairs by themselves cannot be included in the first $5000 but may be added after the $5000 threshold is reached.

6. CAN A 203(k) LOAN HAVE A 2-1 BUYDOWN, WHICH ALLOWS THE BORROWER TO QUALIFY FOR A LARGER LOAN ?
Yes, contact your Loan Officer for information.

7. ARE THERE TIME PERIOD RESTRICTIONS TO THE 203(k) ?
Yes. There are three provisions concerning the timeliness of the work: work must begin within 30 days of the execution of the Agreement; work can not cease for more than 30 consecutive days; and, the work must be completed within the time period shown in the Agreement – not to exceed 6 months.

8. HOW ARE FUNDS DISTRIBUTED ?
No funds are released until work has been completed and inspected by a HUD Consultant. Borrowers or Contractors are required to use their own funds to start the project. As soon as a portion of work has been completed, the borrower calls their HUD Consultant to perform a Draw Request Inspection. The Consultant must personally visit the site to verify that a percentage of the work has been completed. If, for example, $1500 has been allowed to install new windows and only half of the windows are installed at the time of the inspection, the Consultant will approve 50% or $750 to be released. He submits a written report to the lender who will release the amount approved by the Consultant. Up to five ( 5 ) Draw Requests are allowed. 10% of the requested amount will be retained ( held back ) by the lender until 30 days after the project has been completed and the final inspection has been performed.

9. Required Down Payment
For an Owner-Occupant financing a primary residence, the down payment is roughly 3-5 percent of the as-is value plus improvements.

10. Is a Contractor required to do the work ?
It is highly recommended. 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 manner. Borrowers doing their own work can only be paid for the cost of the materials. This does allow a borrower to pay for more improvements. *Note: I’ve noticed lately, fewer lenders are allowing the Borrower to do their own work. This is because, generally, the Borrowers take too long to complete the project, fail to get the necessary permits and inspections, the work is, many times, not to code and has to be re-done before the Consultant will approve a Draw Request.

11. Does the home have to be a HUD Property or run down to use a 203(k) loan ?
No. ANY home more than one year old that a borrower wants to purchase and/or remodel is eligible.

12. Is there a guarantee for the work that is done ?
HUD / FHA does not guarantee work performed by contractors or borrowers. However, a Contingency Reserve is included in each 203(k) loan to correct unsatisfactory work. In addition, the property owner must sign for their acceptance of work before money is released to the Contractor.

13. Can the Borrower take cash out of the loan funds ?
No. With this loan, no cash out is allowed. If for example, the estimated cost of repairs is $15,000 and the project is completed for $12,000, the remaining $3000 will be applied the loan to reduce the loan balance. This only reduces the amount owed and will not change the loan payment or any other terms of the loan.