FAQs - Frequently Asked Questions
Home Rehab Loans (Section
203k)
- Can mortgage payments (PITI) be included
in the home rehab mortgage? Yes.
Up to six months of payments may be included in the home rehab
mortgage loan if the property is not occupied during the rehab
period.
- Can a six (or more) unit building be
financed using a 203k rehab loan? No. However,
the building could be renovated and reduced to a four unit building.
- Can a dwelling be converted to provide
access for a disabled person? Yes. A dwelling can be
remodeled to improve the kitchen and bath to accommodate a wheelchair
access. Wider doors and handicap ramps can also be included
in the cost of rehab.
- Is a contractor required to do the work? No.
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 and workmanlike manner. It is very important that
the work be done in a time frame that will assure the completion
of the work that will be agreed upon in the Rehab Loan
Agreement (signed at closing). A borrower doing their own work
can only be paid for the cost of the materials. Monies saved
can be allocated to cost overruns or additional improvements.
- If the borrower does the work, how is
the cost for work estimated? The cost estimate must
be the same as if a contractor is doing the work, in case the
borrower cannot (for some reason) complete the work.
- Can cost savings on the rehab
be given back to the borrower? No. However, the savings
can be transferred to cost overruns in other work items or can
be used to make additional improvements to the property If the
cost savings are not used, the money must be applied to the mortgage
principal, but the mortgage payments will remain the same, because
the loan has already closed. To use the cost savings, it will
be necessary for a Change Order to be completed and approved
by the lender.
- Can any rehab money be paid
upfront to offset the startup costs for the contractor? No.
However, an exception can be allowed for kitchen and bath cabinetry,
or floor covering, where a contract is established with the
supplier and an order is placed with the manufacturer for delivery
at a later date.
- Is there anyone available who can prepare
the Work Write-up and cost estimates? Yes. HUD allows
fee inspectors to be an independent consultant with the borrower.
This is a time saver, because it can be completed in about two
weeks. After this step is completed, closing should occur within
60 to 90 days.
- Can the borrower do their own work write
up and cost estimate? Yes. However, it will take them
between three to six months to complete. This slows down the
process and will save only about $200, but waste a lot of valuable
time. Hiring an independent consultant will help the closing
occur within 60 to 90 days from completion of the Work Write-up.
The information provided in this website is
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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