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203(k) Rehabilitation Mortgage Insurance Program Types

Limited 203(k) Mortgage

  • Permits homebuyers and homeowners to finance up to $35,000 into their mortgage to repair, improve, or upgrade their home.
  • Homebuyers and homeowners can quickly and easily tap into cash to pay for property repairs or improvements, such as those identified by a home inspector or an FHA appraiser.
  • Homeowners can make minor remodeling and non-structural repairs, improvements, or prepare their home for sale. 
  • Homebuyers can make their new home move-in ready by remodeling the kitchen, painting the interior, or purchasing new carpet.

Standard 203(k) Mortgage­

  • The Standard 203(k) program is FHA's primary program for the rehabilitation and repair of single-family properties.
  • The cost of the rehabilitation must be at least $5,000 but the total value of the property must still fall within the FHA mortgage limit for the area.
  • The Standard 203(k) program is an important tool for major renovations, structural additions, community, and neighborhood revitalization, as well as to expand homeownership opportunities.

Origination Stage

  1. Borrower owns or finds a property that requires rehabilitation.
  2. Borrower talks to an FHA-approved lender and selects FHA 203(k) program.
  3. Lender selects a 203(k) HUD-approved consultant from the roster. This step is optional for the Limited 203(k) Mortgage.
  4. Consultant visits the home with borrower and prepares a work write-up and cost estimate.
  5. Work write-up and bids are provided to the lender.
  6. Lender processes, underwrites, closes, and funds the transaction. 
  7. Lender submits the loan for endorsement and FHA insures the loan.
  8. Improvements can begin.

 

 

 

Repair/Improvements Stage

  1. Contractor obtains necessary permits prior to the start of the project.
  2. Contractor completes the first phase of the project.
  3. Borrower contacts the 203(k) consultant to request an inspection for draw release.
  4. Consultant and borrower inspect the work and consultant certifies work is satisfactory.
  5. Consultant and borrower sign the draw release and submit to lender for payment.
  6. Lender issues a two-party check made payable to borrower and contractor.
  7. This process continues until all work is completed.

 

 

 

Project Completion Stage

  1. Borrower provides a release letter indicating all work is completed.
  2. Consultant verifies completion.
  3. Consultant obtains certificate of occupancy or building permit close-out approval if applicable.
  4. Remaining escrow funds are released.
  5. Lender is responsible to close out the entire project and loan in FHA Connection, Escrow close-out screen.

 

 

 

Resources

Contact the FHA Resource Center for more 203(k) information.

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