September 15, 2016
Recently we wrote about the FHA 203(k) rehab loan and the FHA 203(k) limited rehab loan. With the “standard” rehab loan, borrowers can make major improvements to a property with a minimum of $5,000 required.
The limited version of the FHA 203(k) rehab loan differs in several ways, but to start with there is no minimum dollar amount for the loan.
HUD 4000.1 has rules that apply to the FHA requirements for 203(k) limited rehab loan. Those include a list of ineligible projects for the limited version of this type of mortgage loan:
“The Limited 203(k) mortgage proceeds may not be used to finance major rehabilitation or major remodeling. FHA considers a repair to be major when any of the following are applicable:
-the repair or improvements are expected to require more than six months to complete;
-the rehabilitation activities require more than two payments per specialized contractor;
-the required repairs arising from the appraisal necessitate a Consultant to develop a specification of repairs/Work Write-Up or require plans or architectural exhibits; or
-the repair prevents the Borrower from occupying the Property for more than 15 Days during the rehabilitation period.”
Those are important details remember when considering your options under this type of rehab loan, and FHA loan rules also add a few additional restrictions under the limited program:
“Limited 203(k) mortgage proceeds may not be used to finance the following specific repairs:
-converting a one-family Structure to a two-, three- or four-family Structure;
-decreasing an existing multi-unit Structure to a one- to four-family Structure;
-reconstructing a Structure that has been or will be demolished;
-repairing, reconstructing or elevating an existing foundation;
-purchasing an existing Structure on another site and moving it onto a new foundation;
-making structural alterations such as the repair of structural damage and New Construction, including room additions;
-landscaping and site improvements;
-constructing a windstorm shelter;
-making additions or alterations to support commercial use or to equip or refurbish space for commercial use; and/or
-making recreational or luxury improvements”
If you need to make improvements in the areas above, you should have a conversation with a loan officer about the standard FHA 203(k) rehab loan instead. Some restrictions, such as those that pertain to recreational or luxury improvements, may still apply, but other restrictions such as “major improvements” are addressed in the standard program instead of the limited version.
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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