Questions and Answers – See all questions?

Q. I am using FHA financing and the appraiser commented on several items that require repairs that the seller won't pay for. Can I use a FHA 203k rehab loan to buy the house?
A. Yes. Since a lender won't approve a standard FHA loan in which the appraiser issued an appraisal report "subject to" repairs being made you can use a FHA 203k rehab loan to setup an escrow account that will allow these repairs to be made after you have purchased the house.

Q. Is the FHA 203k loan only available for single family homes?
A. No. The program is also available for one-to-four unit properties, condominiums, and even mixed use properties.

Q. How does an adverse termite report impact the type of 203k loan selected?
A. If the termite damage impacts anything structural that need to be repaired or replaced, such as support beams, floor joists, and sub-flooring, then you'll need a full FHA 203k loan and not the FHA 203k streamline loan.

Q. Can a five (or more) unit building be purchased using the FHA 203k loan program?
A. No, unless the building is being renovated and reduced to a four unit property.

Q. Can a single family property be converted to a two to four until property using the FHA 203k mortgage program?
A. Yes

Q. Can a parent or relative co-sign the loan?
A. Yes, a parent or relative can co-sign a FHA loan as a non-occupant co-signer. The occupying borrower still must meet all FHA required credit guidelines.

Q. Can a mixed-use (i.e. storefront) property be eligible for a FHA 203k mortgage loan?
A. Yes, a mixed-use property that has no more than 25% for one story building, 33% for a three story building, and 49% for a for a two story building of its floor area used for commercial storefront purposes. The rehab escrow budget can only be used for repairing the residential area of the property and areas used to access the residential part of the property.

Q. Can I purchase a HUD-owned home using the FHA 203k loan?
A. Yes, provided the property is advertised that it is eligible for financing with a FHA 203k rehab loan. If the HUD-owned property is purchased with other funds, a FHA 203k mortgage can be made after the property is in the buyers name, In this case, cash back will be allowed to the borrower for a period of six months from the date of purchasing the HUD-owned home.

Q. Can an investor use the FHA 203k mortgage loan?
A. No, the loan program is only available for owner occupied properties.

Q. Using the FHA 203k rehab loan can an existing house be moved to another site?
A. Yes, but the loan proceeds to purchase the existing structure on the non-mortgage property will not be released until the new foundation on the mortgaged property has been inspected and the dwelling has been placed and secured to the new foundation. At closing, funds will be released to purchase the site and the remaining mortgage proceeds will be in the repair escrow account. The first repair escrow draw will be based on the improvements made to the site and the installation of the existing structure on the new foundation.

Q. When must the repair work start and be completed by?
A. The property rehabilitation must started within 30 days of the settlement date, ending within six months of the settlement date, and must not cease prior to the completion date for more than 30 consecutive days.

Q. What happens if the homeowner fails to perform during the rehabilitation period?
A. Several alternatives will be available to the lender including the refusal to make further released from the repair escrow account, the funds remaining in the account can be applied to reduce the mortgage principal, or the lender may call in the mortgage loan.

Q. Does the rehabilitation account require a contingency reserve?
A. Yes, the contingency reserve must be a minimum of 10% of the cost of the rehabilitation, and can be as high as 20% when major remodeling is involved. If utilities were not turned on during the inspection a minimum of 15 percent is required.

Q. How many draw releases can be scheduled during the rehabilitation period?
A. Depending on the size of the project between one to five releases can be scheduled. The number of draw releases is normally dictated by the cash-flow requirements of the contractor. An inspection usually is required with the scheduled release.

Q. After settlement can the repair items and cost estimates be modified?
A. Yes, provided the changes are approved by the lender prior to any work being performed. If the changes impact the health, safety, or necessity of the dwelling, the contingency reserve can be used to pay for the changes. However, if the health, safety, or necessity of the dwelling is not affected and an increase in cost occurs, the borrower must deposit money into the contingency reserve fund to pay for the changes. Should the change result in a lower rehab cost, the money saved will be placed into the contingency reserve funds, to be applied as a mortgage prepayment after completion of construction.

Q. If their are cost overruns can the FHA 203k mortgage amount be increased?
A. No, once the loan closes the loan amount can't be changed. This is why it is so important to select a contractor who will complete the rehabilitation project at or under budget.

Q. Can the mortgage payments be included in the loan?
A. Yes, up to six months of mortgage payments (principal, interest, taxes, and insurance) can be included in the mortgage if the property isn't occupied during the rehab period.

Q. Can the homeowner make the repairs themselves?
A. Yes the homeowner can perform the work themselves and act as the general contractor provided they are qualified to do the work and can complete the project in a timely and professional manner. A borrower doing their own work can only be paid for the cost of the material. Monies saved can be allocated to cost overruns or additional improvements.

Q. If the homeowner does the work, how is repair escrow budget determined?
A. The cost estimate must be the same as if a contractor was performing the repairs. This way should the borrower be unable to complete the repairs a contractor can be hired to finish the project..

Q. When the homeowner makes the repairs themselves can they be paid the same as the contractor?
A. No, the savings achieved by not having to pay a contractor can be applied to cost overruns in other work items or can be used to make additional improvements to the property. If the savings are not used the money must be applied to reduce the mortgage principal. However the mortgage payments will remain the same, just the loan will be paid off sooner..

Q. Can the contractor submit for an initial draw before any work is started?
A. No.

Q. How does the homeowner obtain the work write up and cost estimates?
A. Depending on the situation the write-up and cost estimates can be obtained from a contractor or a FHA 203(k) Consultant. Frequently, the FHA 203k Consultant will work in conjunction with the contractor determine the actual cost of the repairs.

Q. How many appraisal reports most be obtained as part of the loan process?
A. Typically just one provided the property hasn't been transferred, excluding bank repossessions, in the previous 12 month period. The appraisal report must include both the as-is property value and the after-completed property value.

Q. Can I buy a house using the FHA 203k loan program without any money down?
A. No, the minimum required cash that the borrower must contribute is 3.5% of the loan amount. This minimum cash contribution can come from flexible sources such as gifts from a family member or borrowed against a 401(k) retirement account.

Q. How can I get pre-qualified for the FHA 203k rehab mortgage loan program?
A. To determine your eligibility for the FHA 203k mortgage loan call (866) 305-7808 from 8:00 a.m. to 6:00 p.m. Monday – Friday or click here to get started .