The Streamlined 203k process calls for an escrow account to be created to fund repairs. This account survives settlement of the mortgage loan, allowing the purchase of the property to complete prior to the start of construction.

A contractor is hired to make repairs specified prior to the closing of the loan. The bid can not be changed. The contractor receives a deposit, also agreed upoin in advance, and final payment when the work is complete.

For repairs above $15,000 in total, a 203k inspector makes sure the work is complete to FHA standards. If the total cost of your repairs is less than $15,000, you won’t need to have the completed work inspected, but it is advisable to have a general home inspection for your own peace of mind.

FHA requirements apply to the 203k rehabilitation program. and an additional set of rules are applicable to the home improvement portion of the loan.

FHA loan requirements:

Credit score: Mortgage lenders may accept borrowers with credit scores as low as 580. Some will approve lower scores case-by-case;

Minimum down payment: 3.5% for borrowers with credit scores of 580 or higher; 10% min. down for scores below 580;

Debt-to-income ratio: Up to 45%;

Mortgage insurance premium: Upfront MIP payment of 1.75% (added to the loan), plus an annual rate of 0.55% (added to monthly payments);

Property use: Primary residence. The home being purchased may not be a second home or investment property;

FHA loan limits: Subject to FHA loan limits (adjusted annually and by location)

203k-specific loan requirements:

Age: The dwelling must be at least 12 months old;

Cap: Repairs are capped at $35,000. More expensive projects require a Full 203k loan program;

Contractor Compliance: Contractors must be licensed in the District of Columbia. All repairs must comply with DC building codes, and permits must be pulled for work as required by the District. The contractor’s bid must follow FHA guidelines;

Deadline For Completion: Construction must be completed within six months of the home purchase closing;

Scope of repairs: Not all home repairs can be financed into a 203k loan

Not all, but the guidelines are fairly generous:

• The property must be a one- to four-family dwelling that has been completed for at least one year
• The number of units on the site must be acceptable according to the provisions of local zoning requirements
• All newly constructed units must be attached to the existing dwelling
• Cooperative units are not eligible
• Homes that have been demolished, or will be razed as part of the rehabilitation work, are eligible provided some of the existing foundation system remains in place In addition to typical home rehabilitation projects, this program can be used to convert a one-family dwelling to a two-, three-, or four-family dwelling
• An existing multi-unit dwelling could be decreased to a one- to four-family unit. An existing house (or modular unit) on another site can be moved onto the mortgaged property; 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
• A 203(k) mortgage may be originated on a “mixed use” residential property provided: (1) The property has no greater than 25 percent (for a one story building); 33 percent (for a three story building); and 49 percent (for a two story building) of its floor area used for commercial (storefront) purposes; (2) the commercial use will not affect the health and safety of the occupants of the residential property; and (3) the rehabilitation funds will only be used for the residential functions of the dwelling and areas used to access the residential part of the property.

Yes, under these conditions:

• 203(k) mortgages can be used for individual units in condominium projects approved by FHA
• The 203(k) 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
• Owner/occupant and qualified non-profit borrowers only; no investors
• Rehabilitation is limited only to the interior of the unit. Mortgage proceeds are not to be used for the rehabilitation of exteriors or other areas which are the responsibility of the condominium association, except for the installation of firewalls in the attic for the unit
• Only the lesser of five units per condominium association, or 25% of the total number of units, can be undergoing rehabilitation at any one time
• The maximum mortgage amount cannot exceed 100% of after-improved value
• After rehabilitation is complete, the individual buildings within the condominium must not contain more than four units.
• By law, Section 203(k) can only be used to rehabilitate units in one-to-four unit structures. However, this does not mean that the condominium project, as a whole, can only have four units or that all individual structures must be detached. Example: A project might consist of six buildings each containing four units, for a total of 24 units in the project and, thus, be eligible for Section 203(k). Likewise, a project could contain a row of more than four attached townhouses and be eligible for Section 203(k) 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).
• Similar to a project with a condominium unit with a mortgage insured under Section 234(c) of the National Housing Act, the condominium project must be approved by HUD prior to the closing of any individual mortgages on the condominium units.