The FHA 203(k) Rehab Loan: Is it Right for You?
The FHA single family home loan handbook, HUD 4000.1 includes guidelines for FHA 203(k) loans. Borrowers should know the loan rules for this type of mortgage includes a list of projects and improvements allowed under the 203(k) rehab loan. The costs you can pay for with this type of mortgage include:
- Construction permits
- Feasibility study
- Construction costs
- Repairs and rehabilitation expenses
- Architectural fees
- Engineering fees
- A 203(k) Consultant fee
- Inspection fees performed during the construction period
- Title update fees
- Any of the above costs may be included in the loan amount.
- FHA 203(k) Rehab Loan Program Restrictions
Borrowers who choose an FHA Energy Efficient Mortgage option with their 203(k) rehab loan should know that according to HUD 4000.1, "Any costs for Energy Efficient Mortgages and Solar Energy Systems must not be included in financeable repair and improvement costs."
FHA loan rules technically permit the borrower to provide her own construction/rehab work, "the Mortgagee must include the costs for labor and materials for each Work Item to be completed by the Borrower under a Rehabilitation (Self-Help) Loan Agreement."
However, you should be prepared for the possibility that some lenders don’t allow the borrower to act as the contractor. Be sure to ask as early in the process as possible about this detail.
There is also the possibility that a contingency reserve fund may be required. According to HUD 4000.1, "Contingency Reserve refers to funds that are set aside to cover unforeseen project costs" and while such a reserve may not be required in every case, you should definitely speak with a loan officer to determine whether your project will be required to have one.
Rehab loans are an effective way to buy and repair a home, or to refinance your existing property to do the same thing. Ask a loan officer today about your options with an FHA 203(k) loan. The FHA single family home loan handbook, HUD 4000.1 includes guidelines for FHA 203(k) loans. Borrowers should know the loan rules for this type of mortgage includes a list of projects and improvements allowed under the 203(k) rehab loan.
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