FAQs - Frequently Asked Questions
Home Rehab Loans (Section
- Are Section 203(k) home rehab
loans restricted to single-family dwellings? No. The
program can be used for one-to-four unit dwellings.
- Can Section 203(k) home rehab loans be
used to improve condos? Yes, however,
condo rehab is subject to certain conditions.
condos for a home rehab loan.
- Can the rehab loans be used to convert a one family dwelling
to a two-, three-, or four-family dwelling (or vice versa)? Yes.
the loans be used to move an existing house onto another
site? Yes, however, release of loan proceeds
for the existing structure on the non-mortgaged property is not
allowed until the new foundation has been properly inspected
and the dwelling has been properly placed and secured to the
new foundation. At closing, funds would be released to purchase
the site and the rest of the mortgage proceeds would be placed
in the Rehab Escrow Account. The borrower would have
the site prepared to accept the dwelling. The first release
would be based on the improvements made to the site, including
the installation of the existing structure on the new foundation.
- What is the minimum amount of rehab
required for a Section 203(k) home mortgage? There
is a minimum $5,000 requirement for the eligible improvements
on the existing structure on the property. Minor or cosmetic
repairs by themselves are unacceptable; however, they may be
added to the minimum requirement.
- What eligible improvements are acceptable under the
$5,000 minimum requirement? See eligible
- Can a detached garage or another dwelling be placed
on the mortgaged property? Yes, however, a new unit
must be attached to the existing dwelling, and must comply
with HUD's Minimum Property Standards and
all local codes and ordinances.
- Is there a time period on the rehab
construction period? Yes, the Rehab Loan
Agreement contains three provisions concerning the timeliness
of the work. The work must begin within 30 days of execution
of the Agreement. The work must not cease prior to completion
for more than 30 consecutive days. The work is to be completed
within the time period shown in the Agreement (not to exceed
six months); the lender should not allow a time period longer
than that required to complete the work.
- Does HUD always require a contingency
reserve to cover unexpected cost increases? Typically,
yes. On homes older than 30 years and over $7,500 in rehab
costs, the cost estimate must include a contingency reserve.
The reserve must be a minimum of ten (10) percent of the cost
of rehab; however, the contingency reserve may not
exceed twenty (20) percent where major remodeling is contemplated.
If utilities were not turned on for inspection, a minimum fifteen
(15) percent is required.
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