What types of repairs are acceptable for an FHA 203K Loan?
Any repairs, improvements, modifications and/or modernizations that add value to and/or improve the property are acceptable for an FHA 203K Loan. The improvements must comply with HUD's Minimum Property Standards (24 CFR 200.926d and/or HUD Handbook 4905.1) and all local codes and ordinances. Landscaping, structural modifications and work in excess of $35,000 are NOT allowed for the FHA 203K Streamlined Loan.
FHA 203K Allowable Repairs and/or Modifications
- Energy Efficient upgrades
- Repair/Replacement of roofs, gutters and downspouts
- Repair/Replacement/upgrade of existing HVAC systems
- Repair/Replacement/upgrade of plumbing and electrical systems
- Repair/Replacement of flooring
- Minor remodeling, such as kitchens, which does not involve structural repairs
- Painting, both exterior and interior
- Weatherization, including storm windows and doors, insulation, weather stripping, etc.
- Purchase and installation of appliances, including free-standing ranges, refrigerators,washers/dryers, dishwashers and microwave ovens
- Accessibility improvements for persons with disabilities
- Lead-based paint stabilization or abatement of lead-based paint hazards
- Repair/replace/add exterior decks, patios, porches
- Basement finishing and remodeling, which does not involve structural repairs
- Basement waterproofing
- Window and door replacements and exterior wall re-siding
- Septic system and/or well repair or replacement
FHA 203K: Getting Paid
The contractors get paid by the borrower's lender through escrow funds. At closing, the lender places the repair/improvement funds into an escrow account. After closing on your home, contractors can request up to 50% of the job cost for materials/supplies (not to exceed the actual cost of materials/supplies). Once all the work is complete, the contractors can request final payment of the remaining portion of the job cost according to the proposal that was submitted to the borrower and the lender during the inspection period. For the FHA 203k Rehab, contractors may request up to 5 draws for payment. If more than one trade line is used, it is recommended that you hire an approved general contractor to coordinate all the work.
FHA 203K: Eligible Properties
FHA 203(k) loans are intended for owner-occupants, not investors. The following types of properties are eligible:- Single-family to four-family dwellings.
- Existing construction that has been completed for at least one year.
- Teardowns, as long as part of the existing foundation will remain.
- An existing house that will be moved to a new foundation.
- The residential portion of a mixed-use (commercial/residential) property.
- FHA-approved condos.
FHA 203K: How the Program Can Be Used
This program can be used to accomplish rehabilitation and/or improvement of an existing one-to-four unit dwelling in one of three ways:- To purchase a dwelling and the land on which the dwelling is located and rehabilitate it.
- To purchase a dwelling on another site, move it onto a new foundation on the mortgaged property and rehabilitate it.
- To refinance existing liens secured against the subject property and rehabilitate such a dwelling.
