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FAQs - Frequently Asked Questions
Home Rehab Loans (Section 203k)

 

  1. What is the definition of a First-Time Homebuyer? A single person or an individual and his or her spouse who have not owned a home (as a tenant in common or as a joint tenant by the entirety) during the three years immediately preceding the date of application for the 203(k) rehab loan. Any individual who is legally separated or divorced cannot be excluded from consideration, because the three-year waiting period does not apply, provided the individual no longer has an interest in the home.
  2. Can nonresidential (storefront) property be eligible for a 203(k) insured loan? Yes. Mixed-use residential property is acceptable provided the property has no greater than 25% (for a one story building); 33% (for a three story building); and 49% (for a two story building) of its floor area used for commercial (storefront) purposes. The rehab funds can only be used for the residential functions of the dwelling and areas used to access the residential part of the property.
  3. Is only one appraisal required to establish the "after-rehab" value of the property? Basically, yes, provided the lender can be assured that the contract sales price is reasonable or the existing debt on the property is low enough to assure a good equity position by the homeowner. On a HUD-owned property, the lender can use HUD's appraisal for the after-rehab value.
  4. Can HUD-owned properties be purchased using the 203(k) home rehab loan? Yes. However, the property must be advertised that it is eligible for financing with a 203(k) rehab loan. If the HUD-owned property is purchased with other funds, a 203(k) rehab loan 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 purchasing the HUD-owned property
  5. Is the borrower required to enter into a contractual agreement with the general contractor who will do the work on the property? No. However, it is strongly suggested that the lender protect their interests to assure no liens are placed on the property
  6. Can an Energy Efficient Mortgage (EEM) be allowed using the 203(k) program? Yes. A borrower can finance into the mortgage 100 percent of the cost of eligible energy efficient improvements, subject to certain dollar limitations, without an appraisal of the energy improvements and without further credit qualification of the borrower.
  7. What is a Streamline 203k mortgage? The Streamline 203k Limited Repair Loan is a modification of the standard Section 203k home rehab loan, and facilitates purchase transactions in which the home needs minor rehab work, such as identified in a pre-purchase home inspection or an FHA appraisal.  The Streamline 203k limited repair loan is intended to assist homeowners with basic repairs costing at least $5,000 but not greater than $15,000.
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