203k Consultant Answers

What is the FHA 203k loan program?

The Federal Housing Authority’s 203k loan program is HUD’s primary program for the rehabilitation and repair of single-family properties. By offering funds to both purchase and rehabilitate properties, it is an important tool for community and neighborhood revitalization efforts and for expanding homeownership opportunities.
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What is an FHA Section 203k loan?

The 203k is a Federal Housing Administration (FHA) mortgage insurance program, which enables homebuyers and homeowners to finance both the purchase (or refinance) of a house and the cost of its rehabilitation through a single mortgage, or to finance the rehabilitation of their existing home. The minimum amount that can be borrowed is $5,000.

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What is a Streamline loan?

The FHA Streamline(k) Limited Repair Program allows borrowers to finance upgrades and improvements up to $35,000 in mortgage funds. There is no minimum threshold. Rehab funds are held in escrow by the lender and disbursed as work is completed. General contractors and consultants are not required. The lender is responsible for the feasibility study. All standard FHA guidelines apply. The property must be 100% complete and at least one year old.
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What does a 203k consultant do?

The consultant meets with the borrower at the site to determine if the project is feasible. If the client and consultant sign an agreement to go forward, the consultant will prepare a detailed report that includes project specifications, a construction cost analysis and HUD-required draw request forms. The consultant will then prepare contractor bid packages and lender packages. After the loan has been approved, a rehabilitation escrow account is created. Funds are dispersed after HUD-approved inspections are complete.
Sample draw request form

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What is determined in a feasibility analysis?

When a property is located, the homebuyer and real estate professional (agent, broker or 203k consultant) should determine:

  • How much rehab work will be required
  • How much will the rehab and repairs cost
  • How much will the property be worth, once the planned rehab work is completed. (It is important to know early in the process whether or not the value of the property will be greater than the cost of the improvements.)

After the preliminary feasibility analysis is completed, a sales contract will be executed. Then, the homebuyer will choose an FHA-approved lender. How much does a 203k Consultant cost?

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How much does a 203k consultant cost?

While prices may vary slightly, HUD has established a general fee schedule for 203k consultants based on the following ranges for repair costs.

REPAIR AMOUNT CONSULTANT FEE
$5,000 - $7,500 $400
$7,5001 - $15,000 $500
$15,001 - $30,000 $600
$30,001 - $50,000 $700
$50,001 - $75,000 $800
$75,001 - $100,000 $900
$100,001 and up $1,000

While a 203k Consultant is recommended for facilitating a 203k loan, a consultant is not needed for a Streamline(k) loan.

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What types of repairs are eligible under the 203k program?

Following is a list of eligible repairs:

  • Roofs, gutters, and downspouts
  • Upgrade of existing HVAC systems
  • Upgrade of plumbing and electrical systems
  • Flooring
  • Exterior decks, patios, porches
  • Weatherization – including storm windows/doors, insulation, weather stripping, etc.
  • Purchase and installation of new appliances
  • Disability access improvements
  • Lead-based paint stabilization or abatement of lead-based paint hazards
  • Basement finishing/remodeling, which doesn’t require structural repairs
  • Basement water-proofing
  • Window and door replacement
  • Exterior wall re-siding
  • Septic system and/or well repair or replacement

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What improvements are NOT eligible under the FHA Streamline(k) Limited Repair Program?

Following is a list of non-eligible repairs:

  • New constructions including room additions
  • Repair of structural damage
  • Repairs requiring detailed drawings or exhibits
  • Any improvement that will take longer than 3 months
  • Foundation Repairs or new foundations on existing manufactured homes
  • Pool repairs
  • Landscaping or site-amenity improvements

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When can construction of the property begin?

Construction can begin after the loan closes and a rehab escrow account has been set up. The homeowner has up to six months to complete the work. Some lenders may require less than six months.

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When are funds disbursed from the rehab escrow account?

Funds are released after the work has been inspected by a HUD-approved inspector. A maximum of four draw inspections, plus a final inspection are allowed.
Sample Draw Request form

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Am I required to make payments on the rehab escrow amounts that have not been disbursed?

Yes. After the closing, the borrower must make mortgage payments on the entire principal amount of the mortgage, which includes the amount in the escrow account that has not yet been disbursed.

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What happens if there are unused contingency funds in my escrow account?

Your lender must use those funds to prepay the mortgage principal. There is no cash back to the borrower.

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Can I choose any contractor to perform the work?

Some lenders have a preferred list of contractors that meet their criteria. Be sure to ask your lender about their contractor criteria before hiring a contractor.

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Is a condominium eligible for a 203k loan?

Yes. With a streamline loan, the unit must be owner-occupied. Rehab is limited to the interior.
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