1. Taking the Mystery (and Fear) Out
of FHA 203(k) Rehab Loans
December 2011

2. Today’s Agenda
FHA Rehabilitation Loans- 203(k)’s
Property Eligibility
Benefits
Streamline & Standard Program
General Step by Step Guide
Determining the Maximum Loan Amount
HUD REO’s
Additional Information

3. FHA’s 203K Rehab Program
The FHA 203(k) program is HUD’s primary program
for the rehabilitation and repair of residential
properties
There are 2 different 203(k) programs offered:
Streamline
Standard – aka Full, Regular or Consultant
Purchase and rate/term refinances only
Cash out refinances are not allowed

4. FHA’s 203K Rehab Program
Follow 4155.1 Underwriting handbook
No additional credit guidelines
Remember your Lender may have credit overlay’s
203(k) loans allow for repairs to be financed into one
loan
Repair costs funded at time loan closes
Sale proceeds disbursed at closing
Lender or escrow holds repair funds
Funds disbursed as work completed
May require FHA inspections and/or lender inspections

5. Property Eligibility
To be eligible, the property must be a one- to four-
family dwelling that has been completed for at least
one year
Demolished homes or homes that will be tore down
during the rehab process are eligible provided some
of the existing foundation system remains in place
Conversion of single family to multi and vice versa is
acceptable
All health and safety issues must be addressed

6. Today’s Market
October 2011- 28% of all nation-wide purchase sales
were from distressed homes
Approximately 35% of the properties listed on the
market are considered distressed
FHA 203(k) loans make homeownership more
affordable and attractive in market

7. Benefits
Borrower:
One single FHA government insured loan
Standard FHA downpayment
Customized home preferences
Build equity and wealth for future
Add comfort and enjoyment
Seller:
More potential buyers
Faster sale of home

8. Benefits
Realtor:
Sell more listings
Satisfy more buyers
Rewarded with more referrals
Loan Officer:
Add value to current referral partners
Develop new referral partners
Great tool for past customers

9. Streamline vs. Standard
The Streamline 203(k) is intended to help facilitate,
uncomplicated improvements or repairs
The Standard 203(k) is designed for more
complicated projects that many times require
detailed plans, permits, inspections, etc.
Luxury items are not eligible with Streamline or
Full/Consultant 203(k)
Examples are: adding swimming pools, hot tubs,
tennis courts, gazebos, barbecue pits, saunas or
alterations to support commercial use

10. Streamline 203(k)
Streamline 203(k):
Up to $35,000 in total rehabilitation costs
No minimum rehab amount
HUD Consultant not required
Borrowers work with contractors and receive bids
for required work
HUD does not approve contractors; Lenders
responsibility to accept
Bids must be specific to the desired repair
improvements and typically must break out the
cost of materials and labor

11. Streamline 203(k)
Self-Help is discouraged
Due to 50(a)6 restrictions, when subject property
is located in TX, Lender must pay supplier of
material directly
Work to start within 30 days of closing and be
completed with 6 months
Up to 2 draws for contractors
Lenders may choose to release 50% of the repair
costs at closing
No special FHA inspections required for repairs
under $15,000

12. Streamline 203(k) Eligible Repair List
• Repair/Replace roofs, gutters, door spouts
• Repair/Replace/Upgrade heating and cooling systems
• Repair/Replace/Upgrade plumbing and electrical systems
• Repair/Replace carpet and flooring
• Minimal remodeling of kitchens and bathrooms (No
structural repairs)
• Painting (Interior/exterior)
• Window/door replacements
• Minimal basement finishing and remodeling
• Lead paint stabilization / abatement
• Accessibility improvements for persons with disabilities
• For complete list: Mortgagee letters 05-19 & 05-50

13. Streamline 203(k)- Ineligible Repairs
These types of repairs are ineligible for the Streamline
program:
Major rehabilitation
Relocation of load bearing wall
Room additions
New construction
Repairs requiring detailed drawings or architectural
exhibits
Repair of structural damage

14. Standard 203(k)
The Standard 203(k) is used for more complicated
projects such as:
Room additions
Move load-bearing walls
Remodel of kitchen/bathroom
Any property that requires architectural or engineering
drawing/plans
All repairs on Streamline 203(k) eligible list
Project requiring more than 2 draws

15. Standard 203(k)
The minimum cost of repairs is $5,000 and there is no
maximum amount
Borrower can finance up to 6 months of PITI if home
is uninhabitable
Work to start within 30 days of closing and completed
within 6 months
Inspections are required
Up to 5 draws permitted
Self-Help is discouraged

16. Standard 203(k)
HUD Consultant required
Approved by HUD
Manages entire project
Works directly with borrowers & contractors
Inspects property for health and safety issues
Provides work write up that includes the adequacy
of the existing structural, heating, plumbing,
electrical and roofing systems
Can perform final inspections

17. Step by Step
1. Borrower finds home or decides to refinance
Purchase- Borrower and Seller sign a standard sales
contract with 203(k) sales addendum
Sales price does not reflect repairs
2. Borrower receives contractor bids and on Standard
203(k) HUD Consultant provides Specification of
Repairs report
3. Borrower works with Loan Officer to sign all applicable
disclosures, including required 203(k) disclosures
HUD required disclosures
Lender required disclosures

18. Step by Step
4. Appraisal is ordered with contractor bids and all
applicable 203(k) information
“As is” value and “After-Improved” value
5. Loan is submitted to Lender
6. Underwriter determines acceptable repairs and maximum
loan amount
Issues Conditional Commitment
7. Loan closes
8. Work needs to begin within 30 days of closing and must
be completed within 6 months

19. Step by Step
9. After repair work is completed:
Title is updated to evidence no additional liens on
property and if applicable, final inspection is done
evidencing repairs are complete
Borrower must sign letter of repair completion
Funds are released to borrower and contractor
10% holdback on each draw
10. Any unused funds must be used to pay down the original
principal balance
Cash back to borrower is not allowed
No change in terms

20. Determining Maximum Loan Amount
Maximum loan amount determined by HUD’s County
Limits
Purchase= 96.5% LTV
Refinance= 97.5% LTV
203(k) Max Mortgage Worksheet
Detailed instructions on determining the allowable loan
amount

21. Purchase
Borrower required to meet FHA’s minimum cash
investment
Whichever is lesser:
Purchase price or “as-is” appraised value plus
rehabilitation costs
110% of “after-improved” appraised value
Multiply by 96.5%= Total Base Loan Amount

22. Purchase
Example:
Lesser of:
Sales Price= $200,000
Rehab costs= $ 15,000
Total= $215,000
OR
After-improved value= $220,000
110% of after-improved value= $242,000
$215,000 X 96.5%= $207,475 Total Base Loan
Amount
Add UFMIP

23. Rehabilitation Costs
Labor & Materials
Contingency Reserve
10%-20% always required on Standard
Lenders may require on Streamline
Inspection & Title update fees
Financed mortgage payments (Standard only)
Architectural & Engineering Fees (Standard only)
Consultant Fees (Standard only)
Permit fees, if applicable
Supplemental origination fee
1.5% of above fees or $350, whichever is greater
Discount Points on Repair Costs and Fees

24. Refinance
Lesser of:
Existing debt + total rehab costs + closing costs &
prepaids
If subject is owned less than 1 year, use the lesser
of existing debt or sales price
As-is value + rehab costs X 97.75%
110% of the After-Improved value X 97.75%
= Total Base Loan Amount
Add UFMIP

25. HUD REO’s
HUD REO sales contract (HUD form 95-48) must
indicate 203(k)- look at item #4
15% Contingency
Required on any property where utilities are not
turned on
An “as is” appraisal is not required if the HUD field
office releases the outstanding HUD property
disposition appraisal
A new appraisal has to be ordered to determine after
improved value

26. For Additional Information
www.hud.gov
Search: 203K
Link to 203(k) mortgagee letters:
http://portal.hud.gov/hudportal/HUD?src=/progra
m_offices/housing/sfh/203k/203kltrs
Email: answers@hud.gov
Contact your Lender
www.remnwholesale.com
Email: helpdeskuw@remn.com or
remntraining@remn.com

27. Thank you for your time today