Home Rehab Loans (Section 203k)
Section 203(k) home rehab mortgages may be used for individual
units in condominium (condo) projects that have been approved by
FHA, the Department of Veterans Affairs, or are acceptable to Fannie
Mae under the guidelines listed below.
The 203(k) rehab loan program was not intended to be a project
mortgage insurance program, as large-scale development has considerably
more risk than individual single-family mortgage insurance. Therefore,
condo rehab is subject to the following conditions:
- Owner/occupant and qualified non-profit borrowers only; no
- Rehab is limited only to the interior
of the home -- mortgage proceeds are not to be used for the
rehab of exteriors or other areas that are the responsibility
of the condo association, except for the installation of
firewalls in the attic for the unit
- Only the lesser of five units per condo
association, or 25 percent of the total number of units, can
be undergoing rehabilitation at any one time
- The maximum mortgage amount cannot exceed 100 percent of after-improved
After rehab is complete, the individual buildings within
the condo must not contain more than four units. By law,
Section 203(k) home rehab loans can only be used to rehab
units in one-to-four unit structures. However, this does not mean
that the condo project, as a whole, can only have four units
or that all individual structures must be detached.
For example, a condo project might consist of six buildings each
containing four units, for a total of 24 units in the project and,
thus, be eligible for a Section 203(k) rehab loan. Likewise,
a project could contain a row of more than four attached townhouses
and be eligible for a rehab loan because HUD considers each townhouse
as one structure, provided each unit is separated by a 1 1/2 hour
firewall (from foundation up to the roof).
The condo project must be approved by HUD prior to the closing
of any individual mortgages on the condo units.
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is subject to change, and may not apply to all individual circumstances.
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