November 25, 2016
FHA 203(k) rehab loans and 203(k) refinance loans in 2017 will help qualified borrowers buy and improve property in need of repairs, renovation, etc. The FHA 203(k) rehab loan program allows a borrower to fill out an application purchase a “fixer-upper” or improve a property. Here’s what the FHA official site says about this type of FHA mortgage:
“Section 203(k) insurance enables homebuyers and homeowners to finance both the purchase (or refinancing) of a house and the cost of its rehabilitation through a single mortgageor to finance the rehabilitation of their existing home.” There’s both a standard 203(k) and a limited FHA 203(k) loan for smaller projects.
But how does the lender calculate the amount of the 203(k) mortgage or refinance loan? HUD 4000.1 addresses how the maximum mortgage amount is to be calculated. We find this information on page 366. For purchase loans:
“The maximum mortgage amount that FHA will insure on a 203(k) purchase is the lesser of:
-the appropriate Loan-to-Value (LTV) ratio from the Purchase Loan-to-Value Limits, multiplied by the lesser of:
the Adjusted As-Is Value, plus:
Financeable Repair and Improvement Costs, for Standard 203(k) or Limited 203(k);
Financeable Mortgage Fees, for Standard 203(k) or Limited 203(k);
Financeable Contingency Reserves, for Standard 203(k) or Limited 203(k); and
Financeable Mortgage Payment Reserves, for Standard 203(k) only;
or
-110 percent of the After Improved Value (100 percent for condominiums);
or
the Nationwide Mortgage Limits.
For a HUD REO 203(k) purchase utilizing the Good Neighbor Next Door (GNND) or $100 Down sales incentive, the Mortgagee must calculate the maximum mortgage amount that FHA will insure in accordance with HUD REO Purchasing.”
And what about for borrowers interested in an FHA 203(k) refinance loan instead?
“The maximum mortgage amount that FHA will insure on a 203(k) refinance is the lesser of:
-existing debt and fees associated with the new Mortgage, plus:
1. the Financeable Repair and Improvement Costs, for Standard 203(k) or Limited
203(k);
Financeable Mortgage Fees, for Standard 203(k) or Limited 203(k);
Financeable Contingency Reserves, for Standard 203(k) or Limited 203(k); andFinanceable Mortgage Payment Reserves, for Standard 203(k) only;
or
2. the Adjusted As-Is Value, plus:
appropriate LTV ratio below, multiplied by the lesser of:
Financeable Repair and Improvement Costs, for Standard 203(k) or Limited 203(k);
Financeable Mortgage Fees, for Standard 203(k) or Limited 203(k);
Financeable Contingency Reserves, for Standard 203(k) or Limited 203(k); and Financeable Mortgage Payment Reserves, for Standard 203(k) only);
or
110 percent of the After Improved Value (100 percent for condominiums); or 3. the Nationwide Mortgage Limits.”
Talk to a participating FHA lender to discuss your 203(k) options including loan-to-value ratios and specific types of rehab projects you can do under the program with contractors or as a borrower providing “own labor”.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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