FHA Limited 203(k) Rehab Loans for Smaller Projects

March 23, 2018

The FHA 203(k) rehab loan program offers new purchasers and those who wish to refinance existing mortgages and make upgrades/improvements in the process. But not all borrowers have a need to refinance the entire mortgage loan to make their upgrades-is there a smaller version of this rehab loan available?

Yes. The Limited 203(k) is the right FHA mortgage loan for borrowers who need to repair, upgrade, or renovate an existing home but don’t need large-scale work to be done;

FHA limited 203(k) loans feature a maximum total repair cost of $35,000 and no minimum. Standard 203(k) mortgages, by comparison, have a $5,000 minimum and require a 203(k) consultant. Limited 203(k) loans do not require a consultant.

The word "limited" in the FHA limited 203(k) name is not simply a reflection of the amount of loan money you can get. These rehab loans are not intended for major repairs or remodeling; FHA loan rules include a list of projects generally ineligible for FHA 203(k) loans. They address projects where:

• the repair or improvements are expected to require more than six months to complete;
• the rehabilitation activities require more than two payments per specialized contractor;
• the required repairs arising from the appraisal necessitate a Consultant to develop a specification of repairs/Work Write-Up; or require plans or architectural exhibits; or
• the repair prevents the Borrower from occupying the Property for more than 15 Days during the rehabilitation period

FHA Limited 203(k) loan proceeds also cannot be used to do any of the following projects:

• making structural alterations such as the repair of structural damage and New Construction, including room additions;
• converting a one-family Structure to a two-, three- or four-family Structure;
• decreasing an existing multi-unit Structure to a one- to four-family Structure;
• reconstructing a Structure that has been or will be demolished;
• repairing, reconstructing or elevating an existing foundation;
• purchasing an existing Structure on another site and moving it onto a new foundation;

For any such major renovation work, the standard 203(k) would be required and that would mean the requirement of hiring a 203(k) consultant. What CAN be done with a Limited 203(k)?

• eliminating health and safety hazards that would violate HUD's MPR;
• repairing or replacing wells and/or septic systems;
• connecting to public water and sewage systems;
• repairing/replacing plumbing, heating, AC and electrical systems;
• making changes for improved functions and modernization;
• eliminating obsolescence;
• repairing or installing new roofing, provided the structural integrity of the Structure will not be impacted by the work being performed; siding; gutters; and downspouts;
• making energy conservation improvements;
• creating accessibility for persons with disabilities;

If you aren’t sure which type of FHA 203(k) rehab loan is right for you, discuss your needs with a participating lender to see if a limited rehab loan is the best choice.

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