The 203(k) Rehab loan can help if you've found a home in your favorite neighborhood, but the systems have been ignored since it was built 60 years ago...

or you've found a place with great architectural “bones” but it needs a complete rehab...

or you've found a great deal on a house, but it needs a new roof and siding...

or you love this home, but it’s not big enough for your growing family...

or your existing home needs to be retrofitted for accessibility and you don’t have enough equity to cover the entire cost of the job.

A 203K Rehab Loan allows you to finance the repairs or rehab work to your home with your mortgage. To find out how we can put this to work for you, call today.

FHA 203 K Program Overview

Purpose of the 203 K
• This is a loan program designed to fund the repair / rehab of an existing home. 
• The 203 K Program was designed by FHA to make it easier for homeowners to finance these costs.
• A 203 K loan can be implemented to Purchase or Refinance a property.

How you can use a 203 K
• Renovations or repairs to an existing property (built more than one year ago).
• Conversion of a multi-family property to a single family residence; or vice-versa.
• Rebuild a demolished home on the existing foundation.
• Move an existing house to a new foundation.

Loan Options 
• This is an FHA program, and is subject to FHA guidelines.
• Need not be First Time Buyer.
• Must intend to occupy property.
• 30 -Year FHA Fixed Rate loan.
• 1 -Year FHA Adjustable Rate loan.

Maximum Loan Amount
• FHA will loan up to 97.75% of the home’s value.
• OR 110 % of anticipated post-rehab value.
• FHA sets a maximum loan amount, based on home values in a metro area. Your Paramount FHA Expert can tell you what the limits are in your area.

Eligible Improvements
• There must be a minimum of $5,000 for “major” improvements included in the rehabilitation.  Once this requirement is met, “minor” or cosmetic improvements may be added.
• Items specifically excluded: pools, spas, exterior hot tubs, saunas, whirlpool bath, outdoor barbeque pits/fireplace/hearths, television antennas, satellite dishes, tennis courts, or any alterations intended for commercial use.

203 K Process
• Step 1 – Loan Application & Qualification
• Step 2 – Finding the Right Property & Writing The Sales Contract
• Step 2 – The Work Write-up
• Step 3 – The Appraisal
• Step 4 – Inderwriting
• Step 5 – The Pre-Closing Meeting
• Step 6 – Closing
• Step 7 – Rehabilitation Begins
• Step 8 – Inspections and Draws
• Step 9 – Close out

• Make formal loan application/pre-qualified.
• Allow 5-6 weeks from day of the offered sales contract until closing date and 18-20 business days before loan commitment.
• Seller may contribute up to 6% of Sales Price for pre-paid items (taxes/insurance), closing cost & points.
• Property value WITHOUT improvements must support the sales price & value INCLUDING improvements must support the loan amount.

• From the municipality’s city hall, request the code and occupancy requirements, to determine what repairs require permits.
• We will not require inspections or certifications for code, occupancy, gas or termite, however, it is in your best interest to have all these competed prior to the ‘Pre-Closing Meeting” in the event these inspections uncover additional repairs that need to be included in the rehabilitation escrow. We are able to make adjustments to the escrow up to 48 hours prior to closing.

• Make a preliminary list of work to be completed on the property.
• Research possible contractors for this work – all work MUST be performed under the direction of a licensed general contractor of buyers choosing.
• Schedule any inspections, walk-thru for contractors’ estimates, etc. as soon as possible.

The Sales Contract
• This is an FHA loan and the contract should include all normal FHA required documents, i.e. RE Cert and Escape Clause.
• Specify on the contract the buyer is applying for 203K financing.
• Inform buyer it is imperative they meet with the HUD Consultant within the building inspection time frame.

The Work Write-Up
• Buyer to contact a certified HUD Consultant and schedule appointment.
• Buyer meets with the Consultant – reviews list of improvements, inspection reports, contractor’s estimates. Inform the consultant of what limits you have in regards to your loan amount and escrow amount.
• Tour home with Consultant noting items HUD will require which may not already be included in you estimates.
• The Consultant will then complete a “Work Write-up” which will be used as the basis for the rehabilitation escrow.
• The HUD Consultant will have a contingency escrow included in his estimate, usually 10-20% of the rehab work which will cover the unexpected during construction.
• Your General Contractor can use any licensed supplier or subcontractor.  Contractor must agree to be paid according to the Work Write Up estimate, inspections and Consultant approval.

The Work Write Up
• The HUD Consultant will forward he Work Write-Up to your loan officer once the buyer has agreed to the amounts and signed it.
• Request a Homeowner/Contractor Rehabilitation Agreement from each contractor.
• Call for insurance quotes specifying property will have rehabilitation work prior to occupancy.  Some insurance carriers may want a copy of the Work Write-Up before issuing a quote.

Appraisal
• The Work Write-Up will be provided to the appraiser.
• The appraisal will state two values: the “As is” value, which must meet the sales price and the “After-Improved” value which must support the mortgage amount.
• Appraisal will be review by an FHA underwriter before the FINAL loan amount is determined.

Underwriting
• If the home will not be fit for occupancy during rehabilitation, the buyer can escrow the first few payments (max. 6) IF the maximum loan amount has not yet been reached.
• Standard FHA credit underwriting.

Pre-Closing Meeting
• A week prior to closing, the buyer, HUD Consultant, Loan Officer, 203K Escrow Manager and the contractor will meet.
• The 203K Escrow Manager will outline the steps for inspections and draw request, disbursement of funds, changes to the Work Write-Up and expectations for work completion. This is the time to request any additional work to be included in the Work Write-Up and have the final loan amount revised if allowable.
• All estimates, contracts, agreements, should be fully executed and finalized at this time.
• Homeowner’s Insurance must also be finalized at this time.

Closing
• Closing will take place at an approved Title Company
• Buyer should have final figures 24 hours prior to closing.
• Buyer needs valid photo ID, proof of social security number and Cashier’s Check.
• Realtor will provide keys to property unless other arrangements have been made.

Rehabilitation Begins
• Contractor applies and receives all applicable permits.
• Contractor provides owner with Evidence of Insurance; coverage for liability and workers compensation.
• Rehab work must begin within 30 days of closing.
• Rehab work must be fully complete within 6 months.
• If work ceases for more than 30 days, the Lender may consider the loan in default and utilize the escrow to finish the remaining work and/or close-out the loan and begin foreclosure.

Inspections and Draws
• Typically, there are 2 partial inspections and requests for draws and 1 final inspection with the close-out draw.
• Approximately 30% complete, HUD 203K Consultant is scheduled for the 1st inspection.
• HUD consultant will turn in a draw request to the 203K Escrow Manager. Escrow Manager will release escrow funds but will withhold 10% retention until completion of project.
• Approximately 65-70% finished the HUD consultant will complete the 2nd inspection and the Escrow Manager will release funds but will withhold 10% retention until completion of project.
• At 100% complete the Consultant will complete the final inspection and turn over the draw request to the Escrow Manager.
• Escrow Manger will begin close-out before releasing remaining funds.

Close-Out
• Escrow Manager will order the Title Update from the Title Company to insure all costs of labor and materials were paid and have not resulted in liens against property.
• Escrow Manager will audit escrow funds remaining against escrow funds disbursed.
• Escrow Manager will release all remaining funds per the final draw request.
• Borrower must sign all close-out documents
• Escrow Manager will release all retention funds previously withheld.