November 23, 2016
Are you considering an FHA 203(k) rehab loan or refinance loan in 2017? There are rules for this fixer upper loan (and its refinance loan counterpart) you should know going into the process.
For starters, when a borrower is applying for an FHA 203(k) loan, the lender is required to use a 203(k) consultant. According to HUD 4000.1, “The Mortgagee must select an FHA-approved 203(k) Consultant from the FHA 203(k) Consultant Roster in FHAC…The Consultant must inspect the Property and prepare the Work Write-Up and Cost Estimate.”
This section of the loan rules adds definitions for the terms mentioned above. “The Work Write-Up refers to the report prepared by a 203(k) Consultant that identifies each Work Item to be performed and the specifications for completion of the repair. Cost Estimate refers to a breakdown of the cost for each proposed Work Item, prepared by a 203(k) Consultant. Work Item refers to a specific repair or improvement that will be performed.”
In some cases, a borrower might be planning to do her own repair/rehab work. These circumstances are also addressed in HUD 4000.1. “For Borrowers performing their own work under a Rehabilitation Self-Help Agreement, the Consultant must identify on the Work Write-Up each Work Item to be performed by the Borrower. The Borrower must not be reimbursed for labor costs.”
203(k) rehab loans in 2017 include a list of items defined as “repair and improvement costs” that can be financed into the loan. They include:
-costs of construction, repairs and rehabilitation;
-architectural/engineering professional fees;
-the 203(k) Consultant fee subject to the limits in the 203(k) Consultant Fee Schedule section;
-inspection fees performed during the construction period, provided the fees are reasonable and customary for the area;
-title update fees;
-permits; and
-a Feasibility Study, when necessary to determine if the rehabilitation is feasible.
Speak to a loan officer to learn more about FHA 203 loans including the 203(k) and 203(h), and refinance versions of same.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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