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FHA to Help More Owners/Buyers Fix Up Homes

A FHA 203(k) loan allows borrowers to roll upgrade costs into their first mortgage. HUD says loan-change proposals will help “millions of homebuyers and homeowners.”

WASHINGTON – The Federal Housing Administration (FHA), which falls under the Department of Housing and Urban Development (HUD), has proposed changes to its 203(k) Rehabilitation Mortgage Insurance Program and is inviting industry feedback.

For homebuyers, the 203(k) program help them buy fixer-uppers and roll the repair or rehabilitation costs into a single first mortgage. The money can also be used to make a home more energy efficient, and both loans are also offered to current homeowners seeking upgrades.

HUD says its proposed changes would update key provisions of the program to make it more useful in today’s market by increasing flexibility for borrowers, and decreasing operational burdens for lenders, 203(k) Consultants and other program participants.

“At HUD, we are focused on ensuring Americans can make the repairs necessary to keep their homes safe and energy efficient,” says HUD Secretary Marcia L. Fudge. “Thanks to the enhancements we proposed today, home rehabilitation will be more accessible for millions of homebuyers and homeowners through the Federal Housing Administration.”

FHA’s Standard 203(k) program can be used for both remodeling and rehabilitation, including structural repairs such as repairing a foundation, and requires use of an FHA-approved 203(k) consultant. Its Limited 203(k) program may only be used for minor renovation and non-structural repairs, such as installing energy saving improvements, and it does not require the use of a 203(k) consultant.

The latest proposals reflect input FHA received from its Request for Information published in the Federal Register on Feb. 14, 2023.

FHA 203(k) proposed changes

  • Increasing the maximum allowable rehabilitation costs for the Limited 203(k) program from $35,000 to $50,000 ($75,000 in high-cost areas)
  • Allowing 203(k) Consultant Fees to be included in the financed mortgage amount for the Limited 203(k) program. It’s currently allowed only in the Standard 203(k) program
  • Increasing the allowable rehabilitation period for the Standard 203(k) program from six months to 10 months, and for the Limited 203(k) program from six months to seven months
  • Increasing the allowable initial draw amount to include up to 75% of material costs, versus the 50% permitted under the existing policy
  • Updating the 203(k) Consultant Fee schedule by streamlining fees for work write-ups and architectural exhibit reviews. FHA has also proposed increases to the maximum amount for other allowable fees, including the Draw Inspection Fee and the Change Order Request Fee, saying the increase is “designed to appropriately compensate consultants for their role and incent more consultants to participate in the program.”

“The thoughtful responses we received from the industry through our February request for help in identifying barriers to program use were instrumental in the development of these proposed policy updates,” says Deputy Assistant Secretary for Single Family Housing Sarah Edelman. “We are looking forward to receiving feedback on the draft Mortgagee Letter so that we can move forward to final policy updates.”

FHA is accepting feedback on its proposed 203(k) program updates, using the instructions posted on its Single Family Drafting Table web page, through Jan, 5, 2024.

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