One thing in life is constant: change. Whether it's the newest Facebook update that has all of your friends melting down, or it's a change from the government regulators (think TRID, a.k.a. "Know Before You owe Rule"), change is inevitable. You don't have to fear change, you can actually accept it with gusto. So with that in mind, let's dive into the recent changes HUD made to the FHA 203k. This will affect home buyers and real estate agents alike, so listen up.
First, the 2 names designating the different "levels" of the 203k loan have changed. No longer do we have the Full 203k or the 203k Streamline. Because of some confusion with the "regular" FHA loan, we now have new names.
The 203k Full or Full 203k is now called the 203k Standard. The 203k Streamline is now known as the 203k Limited. Most of the previous differences between the two options exist. A few of the changes are listed below.
Contingency Reserve Calculation Change:
The contingency reserve is now established as a percentage of the "financeable repair and improvement costs." These costs include the repair costs and certain financeable fees. This was previously calculated as a percentage of repair costs only.
Here's what it looks like at AmeriFirst Home Mortgage with our contingency reserve percentage requirements:
10 % = Minimum
15% = Required when utilities are off or not operable at time of inspection
20% = Discretionary
*Even though the percentages remain unchanged, these percentages are now calculated on a higher figure that includes repair and improvement costs and certain financeable fees.
Swimming pool change:
Repairing or removing an in-ground swimming pool is allowed on both 203k Standard and 203K Limited with no dollar limitation as to bid amount. The 203k Full and 203k Streamline were both maxed at $1500 for in-ground pool repairs; Full 203k allowed greater than $1500 with cash above $1500 brought in by borrower at close.
203k Standard Foundation:
Now allowed: Repairing, reconstructing, or elevating an existing foundation where the structure will not be demolished. This is new and was actually developed by HUD as a result of damage from Hurricane Sandy and the need for repairs of this type.
203k Limited "Work Plan":
A Work Plan is to be provided by the borrower and one or more contractors will provide the cost estimate or bids. Before these changes from HUD, a Work Plan was not needed.
203k Limited Initial Draw Procedure Change:
HUD rolled out a new procedure in relation to draws for construction. An initial draw for up to 50% of the estimated materials and labor cost before beginning construction now requires a statement from the contractor that the contractor is not willing or able to defer receipt of payment until completion of the work. This was not previously required.
As always, we're here to help you better understand the renovation mortgage process. From the FHA 203k to HomeStyle Renovation, our mortgage consultants work hard to be the best of the best in this niche. Leave us questions in the comments below and we'll make sure one of our expert teammates answers you.