REFINANCE:

Based on the lesser of:

1) The existing debt on the property before rehabilitation, plus the estimated cost of rehabilitation and allowable closing costs or

2) The lesser of the As-Is value plus rehabilitation costs or 110 percent of the After-Improved value multiplied by the appropriate LTV factor.

NOTE: If the property was owned less than one year, the acquisition cost plus the documented rehabilitation costs must be used.

PURCHASE:

The maximum mortgage amount is based on the lesser of 1) or 2) of the below multiplied by the appropriate LTV factor.

1) The As-is value or the purchase price of the property before rehabilitation, whichever is less, plus the estimated cost of rehabilitation or

2) 110 percent of the After-Improved value of the property.

A. Homebuyer Locates the Property.

B. Preliminary Feasibility Analysis. After the property is located, the homebuyer and their real estate professional should make a marketability analysis prior to signing the sales contract. The following should be determined:

1) The extent of the rehabilitation work required;

2) Rough cost estimate of the work; and

3) The expected market value of the property after completion of the work. Note: The borrower does not want to spend money for appraisals and repair specifications (plans), then discover that the value of the property will be less than the purchase price (or existing indebtedness), plus the cost of improvements.

C. Sales Contract is Executed. A provision should be included in the sales contract that the buyer has applied for FHA Section 203(k) financing, and that the contract is contingent upon loan approval and buyer's acceptance of additional required improvements as determined by HUD or the lender.

D. Homebuyer Selects Mortgage Lender. 
IMPORTANT NOTICE: Contact us as soon as you think that you may want to apply for the 203K REHAB loan. There are a number of required steps to qualify.  203K INFORMATION

How the FHA 203K 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.

To purchase a dwelling and the land on which the dwelling is located and rehabilitate it, and to refinance existing indebtedness and rehabilitate such a dwelling, the mortgage must be a first lien on the property and the loan proceeds (other than rehabilitation funds) must be available before the rehabilitation begins.

To purchase a dwelling on another site, move it onto a new foundation and rehabilitate it, the mortgage must be a first lien on the property; however, loan proceeds for the moving of the house cannot be made available until the unit is attached to the new foundation.

Eligible Improvements 

Luxury items and improvements are not eligible as a cost rehabilitation. However, the homeowner can use the 203(k) program to finance such items as painting, room additions, decks and other items even if the home does not need any other improvements. All health, safety and energy conservation items must be addressed prior to completing general home improvements.


The FHA 203K REHAB LOAN

When a homebuyer wants to purchase a house in need of repair or modernization, the homebuyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods. The Section 203(k) program was designed to address this situation. The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property. To provide funds for the rehabilitation, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work. To minimize the risk to the mortgage lender, the mortgage loan (the maximum allowable amount) is eligible for endorsement by HUD as soon as the mortgage proceeds are disbursed and a rehabilitation escrow account is established. At this point the lender has a fully-insured mortgage loan.

IMPORTANT NOTICE: Contact us as soon as you think that you may want to apply for the 203K REHAB loan. There are a number of required steps to qualify.  203K INFORMATION