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203(k) Eligible Improvements & Guidelines
The cost attributed to hiring of Consultant may be included in rehabilitation cost.
The 203(k) mortgage is to be used on 1-to-4 family dwelling units that have been completed for at least one year.
If a home is to be, or has been, demolished - the existing foundation system must be used and approved by a Structural Engineer as to ability to carry the load
May be used to convert a single family dwelling to a two, three or four-family dwelling. OR used to decrease a multi-unit dwelling to a one-to-four unit dwelling.
An existing home on another site can be moved onto the 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
Funds, not to exceed 6 mortgage payments, can be included in cost of rehab & put into escrow to make mortgage payments, if property is not occupied during rehab
A 203k mortgage may be originated on a "mixed use" residential property provided: (1) the property has no greater than 25% (for a one story building); 49% (for a two story building); 33% for a three story building); of its floor area used for commercial (storefront) purposes; (2) the commercial use will not affect the health or 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
To be used for:
1. To purchase a dwelling and the land on which the dwelling is located and rehabilitate the dwelling
2. To purchase a dwelling on another site, move it onto new foundation on the mortgaged property and rehabilitate it
3. To refinance existing indebtedness and rehabilitate such a dwelling
4. Mortgage proceeds must be used in part for rehabilitation and/or improvements to a property. There is a minimum $5000.00 requirement for eligible improvements on the existing structure on the property.
Rehabilitation or improvements; or improvements to a detached garage; a new attached garage; or the addition of an attached unit (if allowed by local zoning ordinances) can also be included in this $5000. Properties with separate detached units are acceptable; however, a newly constructed garage must be attached to an existing unit.
Any repair is acceptable in this $5000 requirement, however - those that may affect the health and safety of the occupants, or affect the energy conservation of the home must be addressed prior to completing general home improvements. The work write-up must demonstrate that when the rehabilitation is completed, the property will meet HUD's Minimum Standards !
Buyers are reminded that HUD is particularly concerned about the value of property after the improvements are completed. To assure that the mortgage is adequately supported by the property value, the maximum 203(k) mortgage amount must be based on the LESSER of the "as-is" value PLUS the cost of repairs (and
improvements), OR - if an "as-is" appraisal is not performed, the contract sales price on a purchase transaction plus the repair costs, OR the existing debt on a refinance plus the cost of repairs, OR 110% of the "after improved" value of the property.
Examples of eligible improvements are:
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