FAQs - Frequently Asked Questions
Home Rehab Loans (Section
203k)
- What is the definition of a First-Time
Homebuyer? A
single person or an individual and his or her spouse who have
not owned a home (as a tenant in common or as a joint tenant
by the entirety) during the three years immediately preceding
the date of application for the 203(k) rehab loan. Any individual
who is legally separated or divorced cannot be excluded from
consideration, because the three-year waiting period does not
apply, provided the individual no longer has an interest in the
home.
- Can nonresidential (storefront) property be eligible
for a 203(k) insured loan? Yes. Mixed-use residential
property is acceptable provided the property has no greater than
25% (for a one story building); 33% (for a three story building);
and 49% (for a two story building) of its floor area used for
commercial (storefront) purposes. The rehab funds can only
be used for the residential functions of the dwelling and areas
used to access the residential part of the property.
- Is only one appraisal required to establish
the "after-rehab" value
of the property? Basically, yes, provided the lender
can be assured that the contract sales price is reasonable
or the existing debt on the property is low enough to assure
a good equity position by the homeowner. On a HUD-owned property,
the lender can use HUD's appraisal for the after-rehab value.
- Can HUD-owned properties be purchased
using the 203(k) home rehab loan? Yes. However, the
property must be advertised that it is eligible for financing
with a 203(k) rehab loan. If the HUD-owned property is purchased
with other funds, a 203(k) rehab loan can be made after the property
is in the buyers name. In this case, cash back will be allowed
to the borrower for a period of six months from purchasing the
HUD-owned property
- Is the borrower required to enter into
a contractual agreement with the general contractor who will
do the work on the property? No. However, it is strongly
suggested that the lender protect their interests to assure no
liens are placed on the property
- Can an Energy Efficient Mortgage (EEM)
be allowed using the 203(k) program? Yes. A borrower
can finance into the mortgage 100 percent of the cost of eligible
energy efficient improvements, subject to certain dollar limitations,
without an appraisal of the energy improvements and without further
credit qualification of the borrower.
- What is a Streamline 203k mortgage? The Streamline
203k Limited Repair Loan is a modification of
the standard Section
203k home rehab loan, and facilitates purchase transactions
in which the home needs minor rehab work, such as
identified in a pre-purchase home inspection or an FHA appraisal. The
Streamline 203k limited repair loan is intended to assist homeowners
with basic repairs costing at least $5,000 but not greater
than $15,000.
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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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