What type of improvements qualify for the FHA (203K) Rehab Loan?
Since my last blog posting (Who needs a Rehab loan from FHA), I have received many calls and emails regarding to many features of the FHA (203K) Rehab loan. Our lender who offers the FHA Rehab loan, is a nationwide lender. I am not clear on how many states they have a license, but I do know that they lend in MN, WI, OH, CA.
The most recent request derived from a realtor seeking more information for his buyers. He has a classic example of a home missing its copper piping. What commonly happens to homes missing their copper piping is that the water is not shut off. This could result in water damage.
You can use the FHA 203K Rehab loan for homes missing their copper piping, but I would be worried about cost over run....for things that come up when you open up the walls and find water damage from the pipes that are missing.....the lender does NOT escrow 1.5 times the bid to cover overruns...what the contractor tell us on the bid is all we put in the loan....NO OVERRUNS.....be careful of the type of work under the umbrella of plumbing. Remember, the mortgage advisor is the one to manage this work until done. Then you submit the invoices for finished work, order title update, and get the appraiser to back out ---take pictures of the completed work. Then you turn all this in to the underwriter that approved your loan to begin with...then she writes the checks to the contractors.
If your customer borrows 15,000 but the contractor runs into damaged wood or mold...if that was not part of the original bid your borrower is now on the hook for that. NOT GOOD!!
The lender wants to know everything that has to be fixed and it must be accounted for....or they don't pay it....PERIOD. If the customer is looking at a property that needs major work...then get a sworn construction statement. This binds the contractor to everything. Make them sign and state that there will be no overrun and that what is on their bid is all that needs to be done....so if they have to rip open walls to inspect and verify that they are ok...then they better do it.
Replacing all the plumbing is very tough. The potential for other damage and mold is HUGE.....get a contractor to verify that there is not one single board of the framed walls that needs to be replaced and no flooring structural pieces then we are now willing to at least look at the total project.
What improvements are eligible under the FHA 203K Rehab loan program?
**Repair/Replacement of roofs, gutters, and downspouts
**Repair/Replacement/Upgrade of existing HVAC systems
**Repair/Replacement/Upgrade of plumbing (missing copper piping?)and electrical systems
**Repair/Replacement of flooring
**Minor remodeling, such as kitchens (no structural repairs)
**Painting, both exterior and interior
**Weatherization, including storm windows and doors, insulation, weather stripping, etc.
**Purchase and installation of appliances, including free-standing ranges, refrigerators, washer/dryer, dishwashers and microwave ovens.
**Accessibility improvements for persons with special need
**Lead-based paint stabilization or abatement of lead-based paint hazards
**Repair/Replacement/Add exterior decks, patios, porches
**Basement finishing and remodeling (no structural repairs)
**Basement waterproofing
**Window and door replacements and exterior wall re-siding
**Septic system and/or well repair or replacement
What improvements are ineligible under the FHA 203K Rehab loan program?
**New construction (including room additions)
**Repair or structural damage
**Repairs requiring detailed drawings or architectural exhibit
**Landscaping or similar site amenity improvements
**Any repair of improvement that require more than two (2) months payment per specialized contractor
For thoughts, suggestion, or questions on the FHA 203K (Rehab loan), email scott@uptownfinancial.com
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