FHA 203k update

On September 14, 2015, FHA introduced exciting new enhancements to expand the use of their 203(k) financing option. Illustrated below are just a few of these new program enhancements:

• For many years HUD tried to discourage the use of their “Self Help” feature, where a homeowner is allowed to act as the General Contractor for their home improvement project. The new changes will open up this opportunity to more individuals who can demonstrate either their work experience in the home construction industry or in remodeling/rehabilitation of “other properties they have owned.” This opportunity will also be available to both their “Standard Option for larger more complicated projects” and their “Limited Option for smaller, less complicated projects.”
• The process of distributing funds to a contractor (i.e. The Draw Process) has also been improved. On larger projects that require a trained HUD Consultant to manage the project, a lender can now release funds at closing to either the contractor or the homeowner for material cost that has been either prepaid or pre-ordered from a supplier like Home Depot, Lowes, Sears, etc. This is a major improvement over the previous requirements where only “special customized materials” could be advanced at closing.
• FHA 203(k) still allows a homeowner to purchase a home, tear it down, and rebuild a new home on the existing foundation. In addition to this, the updated program allows a homeowner to modify an existing foundation (i.e. raise the elevation of the house for flood insurance purposes) providing that the existing structure is intact. This means you can raise and renovate a house; you just can’t tear down a house and rebuild it on a modified foundation. This is a big relief for families still struggling with homes damaged from Hurricane Sandy of October 2012, as well as other areas where flooding becomes an issue.
• The FHA 203(k) offers two financing options so home buyers and homeowners can pick the option that best fits their remodeling project. Those two options are called “The Standard Option” and “The Limited Option.” Both options offer the same product and pricing parameters; the only difference is in the cost of the project and the scope of work with the project. Below is a brief description of each: