July 11, 2024
Changes are coming for those interested in remodeling a home with an FHA rehab loan.
The Department of Housing and Urban Development, along with the Federal Housing Administration, have updated policies associated with the FHA 203(k) Rehabilitation Mortgage Insurance Program.
These changes were implemented to modernize the program and make it a more helpful tool for individuals and families seeking affordable financing options for home renovation or rehabilitation projects.
The FHA 203(k) program offers two loan variations: a “standard” 203(k) for major remodeling projects that may or may not include work on load-bearing walls.
A “limited” 203(k) is available for smaller projects and for what the FHA determines to be “non-structural repairs.”
Several fundamental changes have been made to aspects of the FHA 203(k) program. First, the total rehabilitation costs that can be financed under the Limited 203(k) program have been raised from $35,000 to $75,000.
Additionally, this limit will now be reviewed annually to align with current market conditions.
To provide more flexibility, FHA 203(k) loans now allow more time to complete rehabilitation work. The new policy allows a 12-month completion period for the standard 203(k) and a nine-month window for the limited 203(k).
Furthermore, the updated FHA loan policy now permits the financing of consultant fees for Limited 203(k) loans, and the allowable fees that a 203(k) Consultant can charge for various activities have been increased.
The 203(k) program is designed for individuals who want to include the cost of home rehabilitation or repair in a single mortgage used to purchase or refinance a home.
An FHA rehab loan can be used for various projects, from structural repairs like foundations and roofs to modernization efforts in kitchens and bathrooms and projects aimed at increasing energy efficiency and climate resilience.
FHA Commissioner Julia Gordon expressed her support for the changes, stating that they will encourage greater use of the program in neighborhoods where homes are affordable but in need of repair.
She believes that increased use of 203(k) mortgages will help modernize and revitalize homes, ultimately supporting the supply of affordable housing and strengthening neighborhoods.
These changes to the FHA 203(k) rehab loan program affect FHA rehab loans with case numbers assigned on or after November 4, 2024.
Ask a participating lender if you are unsure how the policy changes for this type of FHA loan affects your transaction.
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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