203K, 203B, and 203B with Escrow Programs
What is a HUD Streamline 203K Program?
HUD has developed a new FHA insured mortgage program called the Streamline 203k Limited Repair Program that permits homebuyers to finance up to an additional $35,000 for repairs into their mortgage to purchase and improve or upgrade the home before move-in or to refinance an existing mortgage and add up to $35,000 for repairs or improvements. With this new 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. Unlike the standard 203(k) program, any FHA approved lender may originate a Streamlined 203k mortgage.
The following repairs can be financed with this program:
* Repair/Replacement of roofs, gutters and downspouts
* Repair/Replacement/upgrade of existing HVAC systems
* Repair/Replacement/upgrade of plumbing and electrical systems
* Repair/Replacement of existing flooring
* Minor remodeling, such as kitchens, which does not involve structural repairs
* Exterior and interior painting
* Weatherization: including storm windows and doors, insulation, weather stripping, etc.
* Purchase and installation of appliances, including free-standing ranges, refrigerators, washers/dryers, dishwashers and microwaves
* Improvements for accessibility for persons with disabilities
* Lead based paint stabilization or abatement of lead based paint hazards
* Repair, replacement or the addition of exterior decks, patios and porches
* Basement remodeling which does not involve structural repairs
* Basement waterproofing
* Window and door replacement and exterior siding replacement
* Well or septic system repair or replacement
This program can also be used with the purchase of a HUD home.
To find a HUD approved lender in your area visit the following HUD website:
All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.
203(k) Rehabilitation Mortgage Insurance
Section 203(k) insurance enables homebuyers and homeowners to finance both the purchase (or refinancing) of a house and the cost of its rehabilitation through a single mortgage or to finance the rehabilitation of their existing home.
Section 203(k) fills a unique and important need for homebuyers. When buying a house that needs repair or modernization, homebuyers usually have to follow a complicated and costly process. The interim acquisition and improvement loans often have relatively high interest rates, short repayment terms and a balloon payment. However, Section 203(k) offers a solution that helps both borrowers and lenders, insuring a single, long term, fixed or adjustable rate loan that covers both the acquisition and rehabilitation of a property. Section 203(k) insured loans save borrowers time and money. They also protect the lender by allowing them to have the loan insured even before the condition and value of the property may offer adequate security.
For less extensive repairs/improvements, see Streamlined 203(k). For housing rehabilitation activities that do not also require buying or refinancing the property, borrowers may also consider HUD's Title I Property Improvement Loan program.
Type of Assistance:
Section 203(k) insures mortgages covering the purchase or refinancing and rehabilitation of a home that is at least a year old. A portion of the loan proceeds is used to pay the seller, or, if a refinance, to pay off the existing mortgage, and the remaining funds are placed in an escrow account and released as rehabilitation is completed. The cost of the rehabilitation must be at least $10,000, but the total value of the property must still fall within the FHA mortgage limit for the area. The value of the property is determined by either (1) the value of the property before rehabilitation plus the cost of rehabilitation, or (2) 110 percent of the appraised value of the property after rehabilitation, whichever is less.
Many of the rules and restrictions that make FHA's basic single family mortgage insurance product (Section 203(b)) relatively convenient for lower income borrowers apply here. But lenders may charge some additional fees, such as a supplemental origination fee, fees to cover the preparation of architectural documents and review of the rehabilitation plan, and a higher appraisal fee.
The extent of the rehabilitation covered by Section 203(k) insurance may range from relatively minor (though exceeding $10,000 in cost) to virtual reconstruction: a home that has been demolished or will be razed as part of rehabilitation is eligible, for example, provided that the existing foundation system remains in place. Section 203(k) insured loans can finance the rehabilitation of the residential portion of a property that also has non-residential uses; they can also cover the conversion of a property of any size to a one- to four- unit structure. The types of improvements that borrowers may make using Section 203(k) financing include:
structural alterations and reconstruction
modernization and improvements to the home's function
elimination of health and safety hazards
changes that improve appearance and eliminate obsolescence
reconditioning or replacing plumbing; installing a well and/or septic system
adding or replacing roofing, gutters, and downspouts
adding or replacing floors and/or floor treatments
major landscape work and site improvements
enhancing accessibility for a disabled person
making energy conservation improvements
HUD requires that properties financed under this program meet certain basic energy efficiency and structural standards.
Applications must be submitted through an FHA approved lender.
Insurance for rehabilitation is authorized under Section 203(k) of the National Housing Act (12 U.S.C. 1709(4k)). Program regulations are at 24 CFR 203.50. For more information contact the FHA Resource Center.
PowerSaver Pilot 203(k) Mortgage
FHA's PowerSaver Pilot 203(k) program will allow eligible homeowners access to low-cost financing when they include energy saving upgrades with their home improvement project, under this new pilot program. The pilot program expires May 4, 2015.
Streamlined 203(k) Mortgage
FHA's Streamlined 203(k) program permits homebuyers and homeowners to finance up to $35,000 into their mortgage to repair, improve, or upgrade their home. Homebuyers and homeowners can quickly and easily tap into cash to pay for property repairs or improvements, such as those identified by a home inspector or an FHA appraiser. Homeowners can make property repairs, improvements, or prepare their home for sale. Homebuyers can make their new home move-in ready by remodeling the kitchen, painting the interior or purchasing new carpet.
Find out more about the Streamlined 203(k) program by reading Mortgagee Letter 2005-50, Enhancements to the "Streamlined (K)" Limited Repair Program. The Streamlined K uses HUD-92700, the 203(k) and Streamlined 203(k) Maximum Mortgage Worksheet.
The Section 203(k) program is FHA's primary program for the rehabilitation and repair of single family properties. As such, it is an important tool for community and neighborhood revitalization, as well as to expand homeownership opportunities.
Contact the FHA Resource Center for more 203(k) information.