The FHA 203(k) rehab loan is an excellent choice for borrowers who need to repair, upgrade, or renovate an existing home. But some borrowers don’t have ambitious, large-scale work to be done and a “full” 203(k) rehab loan might not be appropriate for smaller-scale work.
Is there an option for borrowers who need an FHA 203(k) rehab loan but don’t need a very large sum of money to do the work?
The FHA Limited 203(k) Rehab Loan
The limited FHA 203(k) allows borrowers to apply for rehab loan funds, but the loans in this case have a maximum total repair cost of $35,000 and no repair cost minimum. This type of rehab loan is an excellent choice for borrowers who want to work on the home but without fully refinancing a mortgage.
The word “limited” in the loan’s name does not just refer to the amount of money you can borrrow; these loans are not intended for “major repairs” or “major remodeling” work. If any of the below applies to the project, it is not eligible for an FHA Limited 203(k) Rehab Loan:
-the repair or improvements are expected to require more than six months to complete;
-the rehabilitation activities require more than two payments per specialized contractor;
-the required repairs arising from the appraisal necessitate a Consultant to develop a specification of repairs/Work Write-Up; or require plans or architectural exhibits; or
-the repair prevents the Borrower from occupying the Property for more than 15 Days during the rehabilitation period
Limited 203(k) loan proceeds also cannot be used to do any of the following:
-converting a one-family Structure to a two-, three- or four-family Structure;
-decreasing an existing multi-unit Structure to a one- to four-family Structure;
-reconstructing a Structure that has been or will be demolished;
-repairing, reconstructing or elevating an existing foundation;
-purchasing an existing Structure on another site and moving it onto a new foundation;
-making structural alterations such as the repair of structural damage and New Construction, including room additions;
The above is not a complete list, but it gives you a very good idea of what is not possible with a Limited 203(k). For any such major renovation work, the standard 203(k) would be required.
Examples Of Repairs/Renovations Possible With A Limited FHA 203(k) Rehab Loan
The following list is not all-inclusive, but a few good examples of what can be done with FHA 203(k) loan funds includes (but is not limited to) these:
-eliminating health and safety hazards that would violate HUD’s MPR;
-repairing or replacing wells and/or septic systems;
-connecting to public water and sewage systems;
-repairing/replacing plumbing, heating, AC and electrical systems;
-making changes for improved functions and modernization;
-repairing or installing new roofing, provided the structural integrity of the Structure will not be impacted by the work being performed; siding; gutters; and downspouts;
-making energy conservation improvements;
-creating accessibility for persons with disabilities;
Talk to a loan officer to discuss your specific needs with an FHA rehab loan to see whether the limited or standard FHA 203(k) is right for you.