FAQs - Frequently Asked Questions
Home Rehab Loans (Section
203k)
- How many draw releases can be scheduled
during the rehab period? As many as five releases
(four plus a final) can be scheduled. The number of releases
is normally dictated by the cash-flow requirements of the contractor.
An inspection is always required with a scheduled release; however,
inspections may be scheduled more often than releases if necessary
to ensure compliance with the architectural exhibits, HUD's
Minimum Property Standards and all local codes and ordinances.
If the cost of rehab exceeds $10,000, then additional
draw inspections may be authorized under certain circumstances.
- Can the architectural exhibits, including
the cost estimate, be modified after the rehab mortgage loan
is closed? Yes.
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 rehab, the difference will be placed in the
contingency reserve fund; if unused, it will be applied as
a mortgage prepayment after completion of construction.
- What happens if the cost of the rehab
increases during the rehab period? Can the
rehab mortgage loan 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 rehab at or below the
estimate.
- How long will it take after the sales
contract is signed to go to closing? If the cost estimates
are completed within two weeks of signing the sales contract,
the rehab loan should close within 60 to 90 days, assuming there
are no title problems and, of course, your borrower is qualified.
- Can a Section 203(k) mortgage be an Adjustable
Rate Mortgage? Yes. An Adjustable Rate Mortgage is available
to an owner-occupant only.
- Can an investor use the 203(k) rehab loan
program? No.
In October, 1996, the Department placed a moratorium on investor
participation in the 203(k) Rehab Mortgage Program.
- Can a local government agency or a nonprofit
organization use the 203(k) rehab program? Yes. The
same qualification equirements will be used as for an owner-occupant
of the property
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not legal advice and should not be interpreted as legal advice.
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information in summary form. This information may not be comprehensive,
is subject to change, and may not apply to all individual circumstances.
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