source:
  type: guide
  id: hud-4000-1-ii-a-203-k-rehabilitation-mortgage-insurance-program
  authority: FHA Single Family Housing Policy Handbook 4000.1, Part II — a. 203(k)
    Rehabilitation Mortgage Insurance Program (04/10/2025)
  description: FHA Single Family Housing Policy Handbook 4000.1, Part II — a. 203(k)
    Rehabilitation Mortgage Insurance Program (04/10/2025).
  coverage_tier: operative
obligations:
- id: hud-4000-1-ii-a-203-k-rehabilitation-mortgage-insurance-program-full
  canonical_id: hud-4000-1-ii-a-203-k-rehabilitation-mortgage-insurance-program-full
  section: FHA Single Family Housing Policy Handbook 4000.1, Part II — a. 203(k) Rehabilitation
    Mortgage Insurance Program (04/10/2025)
  type: do
  tags:
  - regulator-direct
  - fha
  - hud-handbook
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: FHA Single Family Housing Policy Handbook 4000.1, Part II — a. 203(k)
      Rehabilitation Mortgage Insurance Program (04/10/2025)
    source_class: hud-handbook
    source_url: https://www.hud.gov/hud-partners/single-family-handbook-4000-1
    snapshot_id: 8c03836f77f317e1
    fetched_at: '2026-05-23T00:28:40Z'
    content_hash: sha256:411430f29b13f9b54a2ebb0e6f6e7087ecd2b90d0da22eb0c8c792eaa2d7d0df
    paragraph_quote: 'a. 203(k) Rehabilitation Mortgage Insurance Program (04/10/2025)
      i. Overview The Section 203(k) Rehabilitation Mortgage Insurance Program is
      used to: • rehabilitate an existing one- to four-unit Structure, which will
      be used primarily for residential purposes; • rehabilitate such a Structure
      and refinance outstanding indebtedness on the Structure and the Real Property
      on which the Structure is located; • purchase and rehabilitate a Structure and
      purchase the Real Property on which the Structure is located; or • rehabilitate
      the interior space of an eligible Condominium Unit excluding any areas that
      are the responsibility of the Condominium Association. Structure refers to a
      building that has a roof and walls, stands permanently in one place, and contains
      single or multiple housing units that are used for human habitation. For 203(k)
      Rehabilitation Mortgage eligibility, a one-family dwelling unit in a multi-unit
      Condominium Project may be considered a single-unit Structure and a townhouse
      in townhouse-style condominium may be considered a single-unit Structure provided
      each townhouse-style unit is separated by a one and one-half hour firewall from
      foundation to roof. Mortgages to be insured under Section 203(k) must be processed
      and underwritten in accordance with the requirements in Origination through
      Post-closing/Endorsement, except where noted otherwise in this section. (A)
      Types of 203(k) Rehabilitation Mortgages There are two types of 203(k) Rehabilitation
      Mortgages: Standard 203(k) and Limited 203(k), as described below. The guidance
      in this section is applicable to both Standard 203(k) and Limited 203(k) Mortgages
      unless noted otherwise. (1) Standard 203(k) The Standard 203(k) Mortgage may
      be used for remodeling and repairs. There is a minimum repair cost of $5,000
      and the use of a 203(k) Consultant is required. (2) Limited 203(k) The Limited
      203(k) may only be used for minor remodeling and nonstructural repairs. The
      Limited 203(k) does not require the use of a 203(k) Consultant, but a Consultant
      may be used. The total rehabilitation costs must not exceed $75,000. The Limited
      203(k) total rehabilitation cost limit will be evaluated on an annual basis
      in conjunction with the process undertaken for the establishment of FHA’s Nationwide
      Forward Mortgage Loan Limits. If it is determined that an increase to II. ORIGINATION
      THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward
      Mortgages 8. Programs and Products - 203(k) Rehabilitation Mortgage Insurance
      Program (04/10/2025) Handbook 4000.1 395 Last Revised: 11/26/2025 the Limited
      203(k) loan limit is warranted, the new limit will be announced concurrent with
      the publication of the Nationwide Forward Mortgage Loan Limits announcement.
      (B) Eligible Supplemental Programs and Products A 203(k) Mortgage may be used
      in conjunction with the following: • Section 203(h) Mortgage Insurance for Disaster
      Victims • Energy Efficient Mortgages • Solar and Wind Technologies ii. Borrower
      Eligibility The Borrower must meet the eligibility requirements found in the
      Borrower Eligibility section, and the additional guidance provided here related
      to nonprofit agency Borrowers. The Mortgagee must verify and document the nonprofit
      agency Borrower’s caseload. The Mortgagee must review the Nonprofit List in
      FHA Connection (FHAC), and ensure the maximum 203(k) case load limitation is
      not exceeded for nonprofit Borrowers. (A) Rental Income Received from the Subject
      Property One-Unit with an Accessory Dwelling Unit If the subject Property is
      a one-unit with an Accessory Dwelling Unit (ADU) and the Borrower does not have
      a history of Rental Income from the subject Property since the previous tax
      filing, to calculate the Effective Income the Mortgagee must use 50 percent
      of the lesser of: • fair market rent reported by the Appraiser; or • the rent
      reflected in the lease or other rental agreement. Mortgagees must apply this
      requirement for both Mortgages underwritten through TOTAL Scorecard and manual
      underwriting. iii. Property Eligibility The Property must be an existing Property
      that has been completed for at least one year prior to the case number assignment
      date. If the Mortgagee is unsure whether the Property has been completed for
      at least one year, the Mortgagee must request a copy of the Certificate of Occupancy
      (CO) or equivalent. A Property that is not eligible for a 203(b) Mortgage due
      to health and safety or security issues may be eligible under 203(k) if the
      rehabilitation or repair work performed will correct such issues. A Property
      with an existing 203(k) Mortgage is not eligible to be refinanced until all
      repairs are completed and the case has been electronically closed out. II. ORIGINATION
      THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward
      Mortgages 8. Programs and Products - 203(k) Rehabilitation Mortgage Insurance
      Program (04/10/2025) Handbook 4000.1 396 Last Revised: 11/26/2025 The following
      property types may be financed: • a one- to four-unit Single Family Structure,
      including a Condominium Unit; • a Site Condominium unit; • Manufactured Housing
      where the rehabilitation does not affect the structural components of the Structure
      that were designed and constructed in conformance with the Federal Manufactured
      Home Construction and Safety Standards and must comply with all other requirements
      for Manufactured Housing; • a Mixed Use Property with one- to four-residential
      units, provided: o 51 percent of the Gross Building Area (GBA) is for residential
      use; and o commercial use will not affect the health and safety of the occupants
      of the residential Property; and • a HUD Real Estate Owned (REO) Property: o
      the Property is identified as eligible for 203(k) financing as evidenced in
      the sales contract or addendum. Investor purchases of HUD REO Properties are
      not eligible for 203(k) financing. (A) Dwelling Unit Limitation A Mortgagee
      may determine that units in a neighborhood are not subject to the Dwelling Unit
      Limitation of no more than seven Dwelling Units within a two block radius when:
      • the neighborhood has been targeted by a state or local government for redevelopment
      or revitalization; • the state or local government has approved and submitted
      a plan to HUD describing the program of neighborhood redevelopment and revitalization,
      including the geographic area targeted for redevelopment, and the nature and
      proportion of public or private commitments that have been made in support of
      the redevelopment; • the nonprofit agency borrower will own no more than 10
      percent of the Dwelling Units (regardless of financing type) in the designated
      redevelopment area; and • the nonprofit agency borrower will have no more than
      eight Dwelling Units on adjacent lots. The Mortgagee must review the approved
      redevelopment plan to ensure that the units in which the nonprofit agency has
      or will have a financial interest are located within the targeted geographic
      area. The Mortgagee must also review public records to determine that the agency
      does not exceed the limitations on the number of units that they may own in
      the redevelopment area, and that they have no more than eight adjacent units.
      (B) Required Documentation The Mortgagee must obtain the following documentation:
      • a copy of the redevelopment plan; and • evidence that the state or local government
      approved the plan. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title
      II Insured Housing Programs Forward Mortgages 8. Programs and Products - 203(k)
      Rehabilitation Mortgage Insurance Program (04/10/2025) Handbook 4000.1 397 Last
      Revised: 11/26/2025 The Mortgagee must submit the documentation to HUD in the
      case binder. iv. Application Requirements The Mortgagee must provide the Borrower
      with the form HUD-92700-A, 203(k) Borrower’s Acknowledgement. v. Case Number
      Assignment Data Entry Requirements In order to request a case number for a 203(k)
      Mortgage, the Mortgagee must enter the following information: (A) 203(k) Program
      Type Indicator The Mortgagee must select either Standard 203(k) or Limited 203(k)
      as the program type. (B) Consultant Selection and Identification Number (1)
      Consultant Selection The use of a 203(k) Consultant is required for a Standard
      203(k) Rehabilitation Mortgage. The Limited 203(k) Mortgage does not require
      the use of a 203(k) Consultant, but a Consultant may be used. When using a Consultant,
      the Mortgagee must select an FHA-approved 203(k) Consultant that is active on
      the FHA 203(k) Consultant Roster for the state in which the Property is located.
      The Mortgagee must not use the services of a 203(k) Consultant who has demonstrated
      previous poor performance based on reviews conducted by the Mortgagee. (2) Consultant
      Identification Number The Mortgagee must enter the Consultant identification
      number into the “Consultant ID” field on the Case Number Assignment screen in
      FHAC. For a Limited 203(k) with no Consultant, the Mortgagee must enter “203KS”
      in the “Consultant ID” field. (C) Automated Data Processing Code The Mortgagee
      must enter the appropriate 203(k) Automated Data Processing (ADP) code. II.
      ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs
      Forward Mortgages 8. Programs and Products - 203(k) Rehabilitation Mortgage
      Insurance Program (04/10/2025) Handbook 4000.1 398 Last Revised: 11/26/2025
      (D) Construction Code The Mortgagee must enter “Substantial Rehabilitation”
      in the drop-down menu labeled “Construction Code.” (E) Refinance Type For a
      refinance transaction, the Mortgagee must select “Not Streamlined” in the drop-
      down menu labeled “All Refinances.” (F) Converting From a Non-203(k) to a 203(k)
      Mortgage If the Mortgagee had originally requested the case number assignment
      for a non- 203(k) Mortgage, the Mortgagee must update the existing case data
      in the Case Number Assignment screen, changing the ADP Code to a valid 203(k)
      ADP Code and the “Construction Code” to “Substantial Rehabilitation.” vi. Standard
      203(k) Transactions (A) Standard 203(k) Eligible Improvements The Standard 203(k)
      requires a minimum of $5,000 in eligible improvements. (1) Types of Improvements
      Types of eligible improvements include, but are not limited to: • converting
      a one-family Structure to a one-family Structure with an ADU, two-, three-,
      or four-family Structure; • adding an Accessory Dwelling Unit (ADU) that will
      be attached to an existing Structure; • renovating an existing ADU that is attached
      or unattached to an existing Structure; • decreasing an existing multi-unit
      Structure to a one- to four-family Structure; • reconstructing a Structure that
      has been or will be demolished, provided the complete existing foundation system
      is not affected and will still be used; • repairing, reconstructing, or elevating
      an existing foundation where the Structure will not be demolished; • purchasing
      an existing Structure on another site, moving it onto a new foundation, and
      repairing/renovating it; • making structural alterations such as the repair
      or replacement of structural damage, additions to the Structure, and finished
      attics and/or basements; • rehabilitating, improving, or constructing a garage;
      • eliminating health and safety hazards that would violate HUD’s Minimum Property
      Requirements (MPR); II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title
      II Insured Housing Programs Forward Mortgages 8. Programs and Products - 203(k)
      Rehabilitation Mortgage Insurance Program (04/10/2025) Handbook 4000.1 399 Last
      Revised: 11/26/2025 • installing or repairing wells and/or septic systems; •
      connecting to public water and sewage systems; • repairing/replacing plumbing,
      heating, AC, and electrical systems; • making changes for improved functions
      and modernization; • making changes for aesthetic appeal; • repairing or adding
      roofing, gutters, and downspouts; • making energy conservation improvements;
      • creating accessibility for persons with disabilities; • installing or repairing
      fences, walkways, and driveways; • installing a new refrigerator, cooktop, oven,
      dishwasher, built-in microwave oven, and washer/dryer; • repairing or removing
      an in-ground swimming pool; • installing smoke detectors; • making site improvements;
      • landscaping; • installing or repairing exterior decks, patios, and porches;
      • constructing a windstorm shelter; and • covering lead-based paint stabilization
      costs, if the Structure was built before 1978, in accordance with the Single
      Family mortgage insurance lead-based paint rule (24 CFR §§ 200.805 and 200.810(c))
      and the U.S. Environmental Protection Agency’s (EPA) Renovation, Repair and
      Painting Rule (40 CFR Part 745, especially subparts E and Q). (2) Improvements
      Standards (a) General Improvement Standards All improvements to existing Structures
      must comply with HUD’s MPR and meet or exceed local building codes. For a newly
      constructed addition to the existing Structure, the energy improvements must
      meet or exceed local codes and the requirements of the latest energy code standard
      that has been adopted by HUD through a Federal Register notice. (b) Specific
      Improvement Standards Any addition of a Structure unit must be attached to the
      existing Structure. Site improvements, landscaping, patios, decks and terraces
      must increase the As-Is Property Value equal to the dollar amount spent on the
      improvements or be necessary to preserve the Property from erosion. (B) Standard
      203(k) Ineligible Improvements/Repairs The 203(k) mortgage proceeds may not
      be used to finance costs associated with the purchase or repair of any luxury
      item, any improvement that does not become a II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      A. Title II Insured Housing Programs Forward Mortgages 8. Programs and Products
      - 203(k) Rehabilitation Mortgage Insurance Program (04/10/2025) Handbook 4000.1
      400 Last Revised: 11/26/2025 permanent part of the subject Property, or improvements
      that solely benefit commercial functions within the Property, including: • recreational
      or luxury improvements, such as: o swimming pools (existing in-ground swimming
      pools can be repaired) o an exterior hot tub, spa, whirlpool bath, or sauna
      o barbecue pits, outdoor fireplaces or hearths o bath houses o tennis courts
      o satellite dishes o tree surgery (except when eliminating an endangerment to
      existing improvements) o photo murals o gazebos; or • additions or alterations
      to support commercial use or to equip or refurbish space for commercial use.
      (C) Standard 203(k) Establishing Repairs and Improvements The Mortgagee must
      select an FHA-approved 203(k) Consultant from the FHA 203(k) Consultant Roster
      in FHAC. The Mortgagee must not use the services of a Consultant who has demonstrated
      previous poor performance based on reviews performed by the Mortgagee. The Consultant
      must inspect the Property and prepare the Work Write-Up and Cost Estimate. The
      Mortgagee must verify that the name shown in the 203(k) Consultant’s Certification
      matches the selected 203(k) Consultant. The Work Write-Up refers to the report
      prepared by a 203(k) Consultant that identifies each Work Item to be performed
      and the specifications for completion of the repair. Cost Estimate refers to
      a breakdown of the cost for each proposed Work Item, prepared by a 203(k) Consultant.
      Work Item refers to a specific repair or improvement that will be performed.
      Exception for Borrowers Doing Own Work For Borrowers performing their own work
      under a Rehabilitation Self-Help Agreement, the Consultant must identify on
      the Work Write-Up each Work Item to be performed by the Borrower. The Borrower
      must not be reimbursed for labor costs. (D) Standard 203(k) Financeable Repair
      and Improvement Costs and Fees The following repair and improvement costs and
      fees may be financed: • costs of construction, repairs and rehabilitation; •
      architectural/engineering professional fees; II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      A. Title II Insured Housing Programs Forward Mortgages 8. Programs and Products
      - 203(k) Rehabilitation Mortgage Insurance Program (04/10/2025) Handbook 4000.1
      401 Last Revised: 11/26/2025 • the 203(k) Consultant fee subject to the limits
      in the 203(k) Consultant Fee Schedule section; • inspection fees performed during
      the construction period, provided the fees are reasonable and customary for
      the area; • title update fees; • permits; and • a Feasibility Study, when necessary
      to determine if the rehabilitation is feasible. Any costs for Energy Efficient
      Mortgages and Solar Energy Systems must not be included in financeable repair
      and improvement costs. For Borrowers performing their own work, the Mortgagee
      must include the costs for labor and materials for each Work Item to be completed
      by the Borrower under a Rehabilitation Self-Help Agreement. (E) Standard 203(k)
      Financeable Contingency Reserves Contingency Reserve refers to funds that are
      set aside to cover unforeseen project costs. The Mortgagee must refer to the
      following chart to determine when a Contingency Reserve is required. The minimum
      and maximum Contingency Reserve is established as a percentage of the financeable
      repair and improvement costs. For Structures with an actual age of less than
      30 years: Minimum Maximum Required when evidence of termite damage 10% 20% Discretionary
      No Minimum 20% For Structures with an actual age of 30 years or more: Minimum
      Maximum Required 10% 20% Required when utilities are not operable as referenced
      in the Work Write-Up 15% 20% The Borrower may provide their own funds to establish
      the Contingency Reserves. Where the Borrower has provided their own funds for
      Contingency Reserves, they must be noted under a separate category in the Repair
      Escrow Account. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II
      Insured Housing Programs Forward Mortgages 8. Programs and Products - 203(k)
      Rehabilitation Mortgage Insurance Program (04/10/2025) Handbook 4000.1 402 Last
      Revised: 11/26/2025 (F) Standard 203(k) Financeable Mortgage Payment Reserves
      A Mortgage Payment Reserve refers to an amount set aside to make Mortgage Payments
      when the Property cannot be occupied during rehabilitation. A Mortgagee may
      establish a financeable Mortgage Payment Reserve, not to exceed 12 months of
      Mortgage Payments. The Mortgage Payment Reserve may include Mortgage Payments
      only for the period during which the Property cannot be occupied. The number
      of Mortgage Payments cannot exceed the completion time frame required in the
      Rehabilitation Loan Agreement. For multi-unit Properties, if one or more units
      are occupied, the Mortgage Payment Reserve may only include the portion of the
      Mortgage Payment attributable to the units that cannot be occupied. To calculate
      the amount that can be included in the Mortgage Payment Reserve, the Mortgagee
      will divide the monthly Mortgage Payment by the number of units in the Property
      and multiply that figure by the number of units that cannot be occupied. The
      resulting figure is the amount of the Mortgage Payment that will be paid through
      the Mortgage Payment Reserve. The Borrower is responsible for paying the servicing
      Mortgagee the portion of the Mortgage not covered by the Mortgage Payment Reserve.
      (G) Standard 203(k) Financeable Mortgage Fees The Mortgagee may finance the
      following fees and charges. (1) Origination Fee The Mortgagee may finance a
      portion of the Borrower-paid origination fee not to exceed the greater of $350,
      or 1.5 percent of the total of the financeable repair and improvement costs
      and fees, financeable Contingency Reserves, and financeable Mortgage Payment
      Reserves. (2) Discount Points The Mortgagee may finance a portion of the Borrower-paid
      Discount Points not to exceed an amount equal to the discount point percentage
      multiplied by the total of financeable repair and improvement costs and fees,
      financeable Contingency Reserves, and financeable Mortgage Payment Reserves.
      (H) Standard 203(k) Required Documentation and Review (1) Review of Contractor
      Qualifications Prior to closing, the Mortgagee must ensure that a qualified
      general or specialized contractor has been hired and, by contract, has agreed
      to complete the work described in the Work Write-Up for the amount of the Cost
      Estimate and within the allotted time frame. To determine whether the contractor
      is qualified, the II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title
      II Insured Housing Programs Forward Mortgages 8. Programs and Products - 203(k)
      Rehabilitation Mortgage Insurance Program (04/10/2025) Handbook 4000.1 403 Last
      Revised: 11/26/2025 Mortgagee must review the contractor’s credentials, work
      experience and client references, and ensure that the contractor meets all jurisdictional
      licensing and bonding requirements. (2) Consultant’s Work Write-Up and Cost
      Estimate The Mortgagee must obtain the Consultant’s Work Write-Up and Cost Estimate
      for all Standard 203(k) Mortgages. The Mortgagee must ensure the Work Write-
      Up/Cost Estimate specifies the type of repair and cost of each Work Item. The
      Mortgagee must review the Work Write-Up and ensure that all health and safety
      issues identified were addressed before, including additional Work Items. (3)
      Architectural Exhibits The Mortgagee must obtain and review all applicable architectural
      exhibits. (4) Sales Contract The Mortgagee must ensure the sales contract includes
      a provision that the Borrower has applied for Section 203(k) financing, and
      that the contract is contingent upon mortgage approval and the Borrower’s acceptance
      of additional required improvements as determined by the Mortgagee. When the
      Borrower is financing a HUD REO Property, the Mortgagee must ensure that the
      first block on Line 4 of form HUD-9548, Sales Contract Property Disposition
      Program, is checked, as well as the applicable block for 203(k). vii. Limited
      203(k) Transactions (A) Limited 203(k) Eligible Improvements The Limited 203(k)
      may only be used for minor remodeling and nonstructural repairs. The total rehabilitation
      costs may not exceed $75,000. (1) Types of Improvements Eligible improvement
      types include, but are not limited to: • eliminating health and safety hazards
      that would violate HUD’s MPR; • repairing or replacing wells and/or septic systems;
      • connecting to public water and sewage systems; • repairing/replacing plumbing,
      heating, AC, and electrical systems; • making changes for improved functions
      and modernization; • eliminating obsolescence; • repairing or installing new
      roofing, provided the structural integrity of the Structure will not be impacted
      by the work being performed; siding; gutters; and downspouts; • making energy
      conservation improvements; II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      A. Title II Insured Housing Programs Forward Mortgages 8. Programs and Products
      - 203(k) Rehabilitation Mortgage Insurance Program (04/10/2025) Handbook 4000.1
      404 Last Revised: 11/26/2025 • creating accessibility for persons with disabilities;
      • installing or repairing fences, walkways, and driveways; • installing a new
      refrigerator, cooktop, oven, dishwasher, built-in microwave oven, and washer/dryer;
      • repairing or removing an in-ground swimming pool; • installing smoke detectors;
      • installing, replacing or repairing exterior decks, patios, and porches; and
      • covering lead-based paint stabilization costs (above and beyond what is paid
      for by HUD when it sells REO properties) if the Structure was built before 1978,
      in accordance with the Single Family mortgage insurance lead-based paint rule
      and EPA’s Renovation, Repair and Repainting Rule. (2) Improvements Standards
      (a) General Improvement Standards All improvements to existing Structures must
      comply with HUD’s MPR and meet or exceed local building codes. (b) Specific
      Improvement Standards Patios and decks must increase the As-Is Property Value
      equal to the dollar amount spent on the improvements. (B) Limited 203(k) Ineligible
      Improvements/Repairs The Limited 203(k) mortgage proceeds may not be used to
      finance major rehabilitation or major remodeling. FHA considers a repair to
      be “major” when any of the following are applicable: • the repair or improvements
      are expected to require more than nine months to complete; • the rehabilitation
      activities require more than two payments per specialized contractor; • the
      required repairs arising from the appraisal: o necessitate a Consultant to develop
      a specification of repairs/Work Write- Up; or o require plans or architectural
      exhibits; or • the repair prevents the Borrower from occupying the Property
      for more than a total of 30 Days during the rehabilitation period. Additionally,
      the Limited 203(k) mortgage proceeds may not be used to finance the following
      specific repairs: • converting a one-family Structure to a two-, three- or four-family
      Structure; • decreasing an existing multi-unit Structure to a one- to four-family
      Structure; • reconstructing a Structure that has been or will be demolished;
      • repairing, reconstructing or elevating an existing foundation; II. ORIGINATION
      THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward
      Mortgages 8. Programs and Products - 203(k) Rehabilitation Mortgage Insurance
      Program (04/10/2025) Handbook 4000.1 405 Last Revised: 11/26/2025 • purchasing
      an existing Structure on another site and moving it onto a new foundation; •
      making structural alterations such as the repair of structural damage and New
      Construction, including room additions; • landscaping and site improvements;
      • constructing a windstorm shelter; • making additions or alterations to support
      commercial use or to equip or refurbish space for commercial use; and/or • making
      recreational or luxury improvements, such as: o new swimming pools; o an exterior
      hot tub, spa, whirlpool bath, or sauna; o barbecue pits, outdoor fireplaces
      or hearths; o bath houses; o tennis courts; o satellite dishes; o tree surgery
      (except when eliminating an endangerment to existing improvements); o photo
      murals; or o gazebos. (C) Limited 203(k) Establishing Repair and Improvement
      Costs The Borrower must submit a Work Plan to the Mortgagee and use one or more
      contractors to provide the Cost Estimate and complete the required improvements
      and repairs. The contractors must be licensed and bonded if required by the
      local jurisdiction. The Borrower must provide the contractors’ credentials and
      bids to the Mortgagee. The Mortgagee must review the contractors’ credentials,
      work experience and client references and ensure that the contractors meet all
      jurisdictional licensing and bonding requirements. The Mortgagee must examine
      the work plan and the contractors’ bids and determine if they fall within the
      usual and customary range for similar work. The Mortgagee may require the Borrower
      to provide additional Cost Estimates if necessary. Exception for Borrowers Doing
      Own Work For Borrowers performing their own work under a Rehabilitation Self-Help
      Agreement, the Borrower must submit a work plan detailing the Work Items to
      be performed by the Borrower and a Cost Estimate from a contractor other than
      the Borrower that provides a breakdown of the cost for labor and materials for
      each Work Item. The contractor must be licensed and bonded if required by the
      local jurisdiction. The Borrower must not be reimbursed for labor costs. II.
      ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs
      Forward Mortgages 8. Programs and Products - 203(k) Rehabilitation Mortgage
      Insurance Program (04/10/2025) Handbook 4000.1 406 Last Revised: 11/26/2025
      (D) Limited 203(k) Financeable Repair and Improvement Costs and Fees The following
      costs and fees may be financed: • costs of construction, repairs, and rehabilitation;
      • inspection fees performed during the construction period, provided the fees
      are reasonable and customary for the area; • the 203(k) Consultant fee, subject
      to the limits in the 203(k) Consultant Fee Schedule section; • title update
      fees; and • permits. Any costs for Energy Efficient Mortgages and Solar Energy
      Systems must not be included in financeable repair and improvement costs. For
      Borrowers performing their own work, the Mortgagee must include the costs for
      labor and materials for each Work Item to be completed by the Borrower under
      a Rehabilitation Self-Help Agreement. (E) Limited 203(k) Financeable Contingency
      Reserves A Contingency Reserve is not mandated; however, at the Mortgagee’s
      discretion, a Contingency Reserve account may be established and may be financed.
      The Contingency Reserve account may not exceed 20 percent of the financeable
      repair and improvement costs. The Borrower may provide their own funds to establish
      the Contingency Reserves. Where the Borrower has provided their own funds for
      Contingency Reserves, they must be noted under a separate category in the Repair
      Escrow Account. (F) Limited 203(k) Financeable Mortgage Fees The Mortgagee may
      include the following fees and charges in the rehabilitation Cost Estimates.
      (1) Origination Fee The Mortgagee may include a portion of the Borrower-paid
      origination fee not to exceed the greater of $350, or 1.5 percent of the total
      of the financeable repair and improvement costs and fees and financeable Contingency
      Reserves. (2) Discount Points The Mortgagee may include a portion of the Borrower-paid
      Discount Points not to exceed an amount equal to the discount point percentage
      multiplied by total of financeable repair and improvement costs and fees and
      financeable Contingency Reserves. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      A. Title II Insured Housing Programs Forward Mortgages 8. Programs and Products
      - 203(k) Rehabilitation Mortgage Insurance Program (04/10/2025) Handbook 4000.1
      407 Last Revised: 11/26/2025 (G) Limited 203(k) Ineligible Fees and Costs The
      following fees and costs may not be financed under the Limited 203(k): • Mortgage
      Payment Reserves • architectural/engineering professional fees • a Feasibility
      Study (H) Limited 203(k) Required Documentation The following documentation
      is required for the Limited 203(k). (1) Work Plan The Mortgagee must obtain
      a work plan from the Borrower detailing the proposed repairs or improvements.
      The Borrower may develop the work plan themselves or engage an outside party,
      including a Contractor or a 203(k) Consultant, to assist. There is no required
      format for the work plan. (2) Written Proposal and Cost Estimates The Mortgagee
      must obtain a written proposal and Cost Estimate from a contractor for each
      specialized repair or improvement. The Mortgagee must ensure that the selected
      contractor meets all jurisdictional licensing and bonding requirements. The
      written proposal must indicate Work Items that require permits and state that
      repairs are nonstructural. The Cost Estimate must state the nature and type
      of repair and cost for each Work Item, broken down by labor and materials. The
      Mortgagee must obtain written Cost Estimates for each Work Item, broken down
      by labor and materials, to be performed by the Borrower under a self-help agreement.
      (3) Sales Contract The Mortgagee must obtain a copy of the sales contract and
      ensure that the sales contract includes a provision that the Borrower has applied
      for Section 203(k) financing, and that the contract is contingent upon mortgage
      approval and the Borrower’s acceptance of additional required improvements as
      determined by the Mortgagee. When the Borrower is financing a HUD REO Property,
      the Mortgagee must ensure that the first block on Line 4 of form HUD-9548 is
      checked, as well as the applicable block for 203(k). II. ORIGINATION THROUGH
      POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages
      8. Programs and Products - 203(k) Rehabilitation Mortgage Insurance Program
      (04/10/2025) Handbook 4000.1 408 Last Revised: 11/26/2025 viii. Appraisals for
      Standard 203(k) and Limited 203(k) (A) Establishing Value The Mortgagee must
      establish both an Adjusted As-Is Value and an After Improved Value of the Property.
      (1) Appraisal Reports An appraisal by an FHA Roster Appraiser is always required
      to establish the After Improved Value of the Property. Except as described below
      in cases of Property Flipping and refinance transactions, the Mortgagee is not
      required to obtain an as- is appraisal and may use alternate methods mentioned
      below to establish the Adjusted As-Is Value. If an as-is appraisal is obtained,
      the Mortgagee must use it in establishing the Adjusted As-Is Value. (2) Adjusted
      As-Is Value The Mortgagee must establish the Adjusted As-Is Value as described
      below. (a) Purchase Transactions For purchase transactions, the Adjusted As-Is
      Value is the lesser of: • the purchase price less any inducements to purchase;
      or • the As-Is Property Value. The As-Is Property Value refers to the as-is
      value as determined by an FHA Roster Appraiser, when an as-is appraisal is obtained.
      In the case of Property Flipping, the Mortgagee must obtain an as-is appraisal
      if needed to comply with the Property Flipping guidelines. (b) Refinance Transactions
      (i) Properties Acquired Greater Than or Equal to 12 Months Prior to the Case
      Assignment Date The Mortgagee must obtain an as-is appraisal to determine the
      Adjusted As-Is Value when the existing debt on the Property plus the following
      items exceeds the After Improved Value: • Financeable Repairs and Improvement
      Costs; • Financeable Mortgage Fees; • Financeable Contingency Reserves; and
      • Financeable Mortgage Payment Reserves (for Standard 203(k) only). II. ORIGINATION
      THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward
      Mortgages 8. Programs and Products - 203(k) Rehabilitation Mortgage Insurance
      Program (04/10/2025) Handbook 4000.1 409 Last Revised: 11/26/2025 When an appraisal
      is obtained, the Adjusted As-Is Value is the As-Is Property Value. The Mortgagee
      has the option of using the existing debt plus fees associated with the new
      Mortgage or obtaining an as-is appraisal to determine the Adjusted As-Is Value
      when the existing debt on the Property plus the following items does not exceed
      the After Improved Value: • Financeable Repairs and Improvement Costs; • Financeable
      Mortgage Fees; • Financeable Contingency Reserves; and • Financeable Mortgage
      Payment Reserves (for Standard 203(k) only). Existing debt includes: • the unpaid
      principal balance of the first Mortgage as of the month prior to mortgage Disbursement;
      • the unpaid principal balance of any purchase money junior Mortgage as of the
      month prior to mortgage Disbursement; • the unpaid principal balance of any
      junior liens over 12 months old as of the date of mortgage Disbursement. If
      the balance or any portion of an equity line of credit in excess of $1,000 was
      advanced within the past 12 months and was for purposes other than repairs and
      rehabilitation of the Property, that portion above and beyond $1,000 of the
      line of credit is not eligible for inclusion in the new Mortgage; • interest
      due on the existing Mortgage(s); • Mortgage Insurance Premium (MIP) due on existing
      Mortgage; • any prepayment penalties assessed; • late charges; and • escrow
      shortages. (ii) Properties Acquired Less Than 12 Months Prior to the Case Assignment
      Date For properties acquired by the Borrower within 12 months of the case number
      assignment date, an as-is appraisal must be obtained. The Adjusted As-Is Value
      is the As-Is Property Value. For properties acquired by the Borrower within
      12 months of the case assignment date by inheritance or through a Gift from
      a Family Member, the Mortgagee may utilize the calculation of Adjusted As-Is
      Value for properties acquired greater than or equal to 12 months prior to the
      case assignment date. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title
      II Insured Housing Programs Forward Mortgages 8. Programs and Products - 203(k)
      Rehabilitation Mortgage Insurance Program (04/10/2025) Handbook 4000.1 410 Last
      Revised: 11/26/2025 (3) After Improved Value To establish the After Improved
      Value, the Mortgagee must obtain an appraisal of the Property subject to the
      repairs and improvements. (B) Documents to be Provided to the Appraiser at Assignment
      The Mortgagee must provide the Appraiser with a copy of the Consultant’s Work
      Write-Up and Cost Estimate for a Standard 203(k), or the work plan, contractor’s
      proposal and Cost Estimates for a Limited 203(k). ix. Maximum Mortgage Amount
      for Purchase The maximum mortgage amount that FHA will insure on a 203(k) purchase
      is the lesser of: • the appropriate Loan-to-Value (LTV) ratio from the Loan-to-Value
      Limits, multiplied by the lesser of: o the Adjusted As-Is Value, plus: ▪ Financeable
      Repair and Improvement Costs, for Standard 203(k) or Limited 203(k); ▪ Financeable
      Mortgage Fees, for Standard 203(k) or Limited 203(k); ▪ Financeable Contingency
      Reserves, for Standard 203(k) or Limited 203(k); and ▪ Financeable Mortgage
      Payment Reserves, for Standard 203(k) only; or o 110 percent of the After Improved
      Value (100 percent for condominiums); or • the Nationwide Mortgage Limits. For
      a HUD REO 203(k) purchase utilizing the Good Neighbor Next Door (GNND) or $100
      Down sales incentive, the Mortgagee must calculate the maximum mortgage amount
      that FHA will insure in accordance with HUD REO purchasing. x. Maximum Mortgage
      Amount for Refinance The maximum mortgage amount that FHA will insure on a 203(k)
      refinance is the lesser of: 1. the existing debt and fees associated with the
      new Mortgage, plus: • Financeable Repair and Improvement Costs, for Standard
      203(k) or Limited 203(k); • Financeable Mortgage Fees, for Standard 203(k) or
      Limited 203(k); • Financeable Contingency Reserves, for Standard 203(k) or Limited
      203(k); and • Financeable Mortgage Payment Reserves, for Standard 203(k) only;
      or 2. the appropriate LTV ratio below, multiplied by the lesser of: • the Adjusted
      As-Is Value, plus: o Financeable Repair and Improvement Costs, for Standard
      203(k) or Limited 203(k); II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A.
      Title II Insured Housing Programs Forward Mortgages 8. Programs and Products
      - 203(k) Rehabilitation Mortgage Insurance Program (04/10/2025) Handbook 4000.1
      411 Last Revised: 11/26/2025 o Financeable Mortgage Fees, for Standard 203(k)
      or Limited 203(k); o Financeable Contingency Reserves, for Standard 203(k) or
      Limited 203(k); and o Financeable Mortgage Payment Reserves, for Standard 203(k)
      only; or • 110 percent of the After Improved Value (100 percent for condominiums);
      or 3. the Nationwide Mortgage Limits. (A) Loan-to-Value Ratios for Refinance
      The table below describes the relationship between the Borrower’s Minimum Decision
      Credit Score and the LTV ratio for which they are eligible. If the Borrower’s
      Minimum Decision Credit Score is: Then the Borrower is: at or above 580 eligible
      for maximum financing of 97.75%. between 500 and 579 limited to a maximum LTV
      of 90%. For Secondary Residences, the maximum LTV is 85 percent. (B) Required
      Documentation The Mortgagee must obtain the mortgage payoff statement for existing
      debt. xi. Maximum Mortgage Amounts for Energy Efficient Mortgages, Weatherization
      Items, and Solar Energy Systems The Mortgagee must calculate the maximum mortgage
      amount without factoring in the cost of Energy Efficient Mortgage (EEM) items,
      Weatherization items, and solar energy systems. The Mortgagee may then add the
      cost of these improvements to determine the Base Loan Amount. The Base Loan
      Amount may not exceed 110 percent of the After Improved Value of the Property
      (100 percent for condominiums). For Limited 203(k) transactions, the costs for
      energy improvements can be in addition to the $75,000 limit on total rehabilitation
      costs. xii. Combined Loan-to-Value (A) Secondary Financing Provided by Governmental
      Entities, Homeownership and Opportunity for People Everywhere Grantees, and
      HUD-Approved Nonprofits There is no maximum Combined Loan-to-Value (CLTV) for
      secondary financing meeting the requirements found in Governmental Entities,
      Homeownership and Opportunity for People Everywhere (HOPE) Grantees, and HUD-Approved
      Nonprofits. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured
      Housing Programs Forward Mortgages 8. Programs and Products - 203(k) Rehabilitation
      Mortgage Insurance Program (04/10/2025) Handbook 4000.1 412 Last Revised: 11/26/2025
      (B) Secondary Financing Provided by Family Members There is no maximum CLTV
      for secondary financing meeting the requirements found in Family Members. (C)
      Secondary Financing Provided by Private Individuals and Other Organizations
      The maximum CLTV for secondary financing provided by private individuals and
      other organizations is 110 percent of the After Improved Value. Secondary financing
      provided by private individuals and other organizations may not be used to meet
      the Borrower’s minimum downpayment requirement. xiii. Mortgage Insurance Premium
      The Mortgagee must comply with the MIP requirements found in the MIP Chart.
      For the purpose of calculating the LTV for application of the MIP, the Mortgagee
      must divide the Base Loan Amount by the After Improved Value. xiv. Underwriting
      The Mortgagee must comply with the underwriting requirements found in Origination
      through Post-closing/Endorsement and the additional guidance provided below.
      (A) Required Documentation Standard 203(k) and Limited 203(k) (1) Identity-of-Interest
      Certification Identity of Interest refers to a transaction between Family Members,
      business partners or other business affiliates. Conflict of Interest refers
      to any party to the transaction who has a direct or indirect personal, business,
      or financial relationship sufficient to appear that may cause partiality and
      influence the transaction. Sales transactions between Family Members and tenants/landlords
      that meet the requirements for the exception in Exceptions to the Maximum LTV
      are permitted. The Mortgagee must ensure there are no other instances of Identity
      of Interest or conflict of interest between parties in the 203(k) transaction.
      The Borrower and the 203(k) Consultant must each sign an Identity-of-Interest
      certification that is placed in the case binder. If the Borrower selected a
      203(k) Consultant to perform a Feasibility Study, the Mortgagee may select the
      same 203(k) Consultant for the project without creating an Identity of Interest.
      II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing
      Programs Forward Mortgages 8. Programs and Products - 203(k) Rehabilitation
      Mortgage Insurance Program (04/10/2025) Handbook 4000.1 413 Last Revised: 11/26/2025
      (a) Borrower’s Certification The Borrower must sign a certification stating
      the following: I hereby certify to the Department of Housing and Urban Development
      (HUD) and (Mortgagee), that I/We ___ do or ___do not have an identity- of-interest
      with the seller. I/We do not have an identity-of-interest with the 203(k) Consultant
      of the property. I also certify that I/We do not have a conflict-of-interest
      with any other party to the transaction, including the real estate agent, mortgagee,
      contractor, 203(k) Consultant and/or the appraiser. In addition, I certify that
      I am not obtaining any source of funds or acting as a buyer for another individual,
      partnership, company or investment club and I/We ___will or ___will not occupy
      the residence I/We are purchasing or refinancing. I/We, the undersigned, certify
      under penalty of perjury that the information provided above is true, accurate,
      and correct. WARNING: Anyone who knowingly submits a false claim or makes a
      false statement is subject to criminal and/or civil penalties, including confinement
      for up to 5 years, fines, and civil and administrative penalties. (18 U.S.C.
      §§ 287, 1001, 1010, 1012, 1014; 31 U.S.C. §§ 3729, 3802). __________________________________
      ________________________ Borrower’s Signature Date __________________________________
      ________________________ Co-borrower’s Signature Date (b) 203(k) Consultant’s
      Certification All 203(k) Consultants are required to sign the following certification
      after preparing/reviewing the Work Write-Up and Cost Estimate, stating: “I hereby
      certify that I have carefully inspected this property for compliance with the
      general acceptability requirements (including health and safety) in HUD’s Minimum
      Property Requirements or Minimum Property Standards. I have required as necessary
      and reviewed the architectural exhibits, including any applicable engineering
      and termite reports, and the estimated rehabilitation cost and they are acceptable
      for the rehabilitation of this property. I have no personal interest, present
      or prospective, in the property, applicant, or proceeds of the mortgage. I also
      certify that I have no identity-of-interest or conflict-of-interest with the
      borrower, seller, mortgagee, real estate agent, appraiser, plan reviewer, contractor,
      subcontractor or any party with a financial interest in the transaction. To
      the best of my knowledge, I have reported all items requiring correction and
      that the rehabilitation proposal now meets all HUD requirements for 203(k) Rehabilitation
      Mortgage Insurance.” II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title
      II Insured Housing Programs Forward Mortgages 8. Programs and Products - 203(k)
      Rehabilitation Mortgage Insurance Program (04/10/2025) Handbook 4000.1 414 Last
      Revised: 11/26/2025 I/We, the undersigned, certify under penalty of perjury
      that the information provided above is true, accurate, and correct. WARNING:
      Anyone who knowingly submits a false claim or makes a false statement is subject
      to criminal and/or civil penalties, including confinement for up to 5 years,
      fines, and civil and administrative penalties. (18 U.S.C. §§ 287, 1001, 1010,
      1012, 1014; 31 U.S.C. §§ 3729, 3802). __________________________________ ________________________
      Consultant’s Signature Date (2) Borrower Acting as General Contractor or Doing
      Own Work (Self-Help) The Mortgagee must document approval for the Borrower to
      act as the general contractor or to complete their own work. • The Mortgagee
      must verify and document that the Borrower is either a licensed general contractor
      or can document experience in completing rehabilitation projects. • The Mortgagee
      must ensure the Borrower demonstrates the necessary expertise and experience
      to perform the specific repair competently and in a timely manner. • The Mortgagee
      must instruct the Borrower of the requirement to maintain complete records showing
      the actual cost of rehabilitation, including paid receipts for materials and
      Lien Waivers from any subcontractors. • The Mortgagee must ensure all permits
      are obtained prior to commencement of work. • The Mortgagee must obtain Cost
      Estimates that clearly state the cost for completion of each Work Item, including
      the cost of labor and materials; however, only materials cost will be reimbursed.
      • The Mortgagee must obtain a signed Rehabilitation Self-Help Agreement from
      the Borrower. (3) Repairs Noted by the Appraiser When an appraisal report identifies
      the need for health and safety repairs that were not included in the Consultant’s
      Work Write-Up, Borrower’s work plan, or contractor’s proposal, the Mortgagee
      must ensure the repairs are included in the Consultant’s final Work Write-Up
      or the Borrower’s final work plan. (4) Form HUD-92700-A, 203(k) Borrower’s Acknowledgement
      The Mortgagee must obtain an executed form HUD-92700-A, 203(k) Borrower’s Acknowledgement.
      II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing
      Programs Forward Mortgages 8. Programs and Products - 203(k) Rehabilitation
      Mortgage Insurance Program (04/10/2025) Handbook 4000.1 415 Last Revised: 11/26/2025
      (5) Feasibility Study If a Feasibility Study was performed to determine if the
      project is financially feasible, the Mortgagee must obtain a copy of the study.
      (6) Borrower Contractor Agreement The Mortgagee must obtain a written agreement
      between the Borrower and the general contractor, or if there is no general contractor,
      for each contractor. The contractor must agree in writing to complete the work
      for the amount of the Cost Estimate and within the allotted time frame. (B)
      Required Documentation for Standard 203(k) Only (1) Consultant Final Work Write-Up
      and Cost Estimate The Mortgagee must obtain the final Work Write-Up and Cost
      Estimate from the Consultant. The final Work Write-Up must include all required
      repairs and improvements to meet HUD’s Minimum Property Standards (MPS) and
      MPR (as applicable) and the Borrower’s electives. The Cost Estimate must state
      the nature and type of repair and cost for each Work Item, broken down by labor
      and materials. Lump sum costs are permitted only in line items where a lump
      sum estimate is reasonable and customary. (2) Architectural Exhibits The Mortgagee
      must obtain and review all required architectural exhibits included in the Consultant’s
      final Work Write-Up. (3) Consultant/Borrower Agreement The Mortgagee must obtain
      a written agreement between the Consultant and the Borrower that fully explains
      the services to be performed and the fees to be charged for each service. The
      written agreement must disclose to the Borrower that any inspection performed
      by the Consultant is not a “Home Inspection,” as detailed in the disclosure
      form HUD-92564-CN, For Your Protection: Get a Home Inspection. (C) Required
      Documentation for Limited 203(k) Only Contractor’s Cost Estimate The Mortgagee
      must obtain the final contractor’s itemized estimate of the repairs and improvements
      to be completed for all Work Items. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      A. Title II Insured Housing Programs Forward Mortgages 8. Programs and Products
      - 203(k) Rehabilitation Mortgage Insurance Program (04/10/2025) Handbook 4000.1
      416 Last Revised: 11/26/2025 xv. Closing (A) Standard The Mortgagee must comply
      with requirements found in the Closing section and the additional guidance provided
      below. There is only one closing that includes the rehabilitation funds. The
      rehabilitation funds are escrowed and disbursed as the work is satisfactorily
      completed. (1) Establishing the Rehabilitation Escrow Account (a) Standard 203(k)
      The Mortgagee must establish an interest-bearing rehabilitation escrow account
      to include, as applicable: • Standard 203(k) Financeable Repair and Improvement
      Costs and Fees; • Standard 203(k) Financeable Contingency Reserves; • Standard
      203(k) Financeable Mortgage Payment Reserves; • the cost of EEM, weatherization
      or solar energy systems improvements; and • the Borrower’s own funds for Contingency
      Reserves. (b) Limited 203(k) The Mortgagee must establish an interest-bearing
      rehabilitation escrow account to include, as applicable: • Limited 203(k) Financeable
      Repair and Improvement Costs and Fees; • Limited 203(k) Financeable Contingency
      Reserves; • the cost of EEM, weatherization or solar energy systems improvements;
      and • the Borrower’s own funds for Contingency Reserves. (c) Escrow Closeout
      Certification Screen The Mortgagee must complete all applicable fields on the
      Escrow Closeout Certification screen in FHAC. (2) Initial Draw at Closing The
      Mortgagee must document the amount and purpose of an initial draw at closing
      on the form HUD-92900-LT, FHA Loan Underwriting and Transmittal Summary. II.
      ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs
      Forward Mortgages 8. Programs and Products - 203(k) Rehabilitation Mortgage
      Insurance Program (04/10/2025) Handbook 4000.1 417 Last Revised: 11/26/2025
      (a) Standard 203(k) For Standard 203(k) transactions, Mortgagees may disburse
      the following at closing: • permit fees (the permit must be obtained before
      work commences); • prepaid architectural or engineering fees; • prepaid Consultant
      fees; • origination fees; • Discount Points; • materials costs for items, prepaid
      by the Borrower in cash or by the contractor, where a contract is established
      with the supplier and an order is placed with the manufacturer for delivery
      at a later date; and • up to 50 percent of materials costs for items, not yet
      paid for by the Borrower or contractor, where a contract is established with
      the supplier and an order is placed with the manufacturer for delivery at a
      later date. For any Disbursements paid to the contractor, the Mortgagee must
      hold back 10 percent of the draw request in the Contingency Reserve. (b) Limited
      203(k) For Limited 203(k) transactions, Mortgagees may disburse the following
      at closing: • permit fees (the permit must be obtained before work commences);
      • origination fees; • Discount Points; and • up to 50 percent of the estimated
      materials and labor costs before beginning construction only when the contractor
      is not willing or able to defer receipt of payment until completion of the work,
      or the payment represents the cost of materials incurred prior to construction.
      A statement from the contractor is sufficient to document. (B) Required Documentation
      (1) Rehabilitation Loan Agreement The Mortgagee and Borrower must execute the
      Rehabilitation Loan Agreement, which establishes the conditions under which
      the Mortgagee will disburse the rehabilitation escrow account funds. The Rehabilitation
      Loan Agreement is incorporated by reference and made a part of the security
      instrument. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured
      Housing Programs Forward Mortgages 8. Programs and Products - 203(k) Rehabilitation
      Mortgage Insurance Program (04/10/2025) Handbook 4000.1 418 Last Revised: 11/26/2025
      (a) Standard 203(k) Rehabilitation Period The Mortgagee must review the 203(k)
      Consultant’s Work Write-Up to determine the time frame for completion of repairs
      not to exceed 12 months. (b) Limited 203(k) Rehabilitation Period The Mortgagee
      must consult the Borrower Contractor Agreement to determine the time frame for
      completion of repairs not to exceed nine months. (2) Security Instrument and
      Rehabilitation Loan Rider If the Mortgage involves releases from the rehabilitation
      escrow account, the following language must be placed in the security instrument:
      “Provisions pertaining to releases are contained in the Rehabilitation Loan
      Rider, which is attached to this mortgage and made a part hereof.” The Rehabilitation
      Loan Rider is a required modification to a security instrument. xvi. Data Delivery/203(k)
      Calculator The 203(k) Calculator enables Mortgagees to calculate the Maximum
      Mortgage amount, LTV for MIP, and the amount to establish a repair escrow when
      required for all 203(k) transactions. Required data for the 203(k) Calculator
      are: • 203(k) Program Type (Standard 203(k) or Limited 203(k)); • As-Is Property
      Value; • Adjusted As-Is Value; • After Improved Value; • existing debt on the
      Property for a refinance; • credit for lead-based paint stabilization per HUD
      REO contract (if applicable); • Financeable Repair and Improvement Costs, for
      Standard 203(k) or Limited 203(k); • Financeable Contingency Reserves, for Standard
      203(k) or Limited 203(k); • Financeable Mortgage Payment Reserves, for Standard
      203(k) only; • Financeable Mortgage Fees, for Standard 203(k) or Limited 203(k);
      • cost of EEM or solar energy systems improvements; and • principal balance
      of secondary financing provided by private individuals and other organizations.
      For applications to be endorsed prior to the availability of data delivery functionality
      in FHAC, the Mortgagee must detail the data delivery requirements shown above
      on form HUD-92900-LT, or include the applicable 203(k) Maximum Mortgage Calculation
      Worksheet. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured
      Housing Programs Forward Mortgages 8. Programs and Products - 203(k) Rehabilitation
      Mortgage Insurance Program (04/10/2025) Handbook 4000.1 419 Last Revised: 11/26/2025
      xvii. Post-closing and Endorsement The Mortgagee must comply with requirements
      in Post-closing and Endorsement. 203(k) Mortgages are eligible for endorsement
      after the initial mortgage proceeds are disbursed and a rehabilitation escrow
      account is established. (A) Rehabilitation Period The rehabilitation period
      starts when the Mortgage is funded. The rehabilitation period is specified in
      the Rehabilitation Loan Agreement. (B) Extension Requests If the work is not
      completed within the rehabilitation period specified in the Rehabilitation Loan
      Agreement, the Borrower may request an extension of time and must submit adequate
      documentation to justify the extension. The Mortgagee may grant an extension
      at its discretion only if the Mortgage Payments are current or the Borrower
      is complying with the terms of the forbearance. (1) Required Documentation The
      Mortgagee must obtain: • evidence that the Mortgage is current or the Borrower
      is complying with the terms of the forbearance; • an explanation for the delay
      from the Borrower, contractor, or Consultant; and • a new estimated completion
      date. (2) Escrow Closeout Certification Screen The Mortgagee must complete the
      required fields on the Escrow Closeout Certification screen in FHAC to document
      the approval or the denial for the extension request of the rehabilitation period
      specified in the Rehabilitation Loan Agreement. (C) Failure to Start or Complete
      Work As stated in the Rehabilitation Loan Agreement, the Mortgagee may consider
      the Mortgage to be in default if work: • has not started within 30 Days of the
      Disbursement Date; • ceases for more than 30 consecutive Days; or • has not
      been completed within the established time frame, or an extended time frame
      approved by the Mortgagee. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      A. Title II Insured Housing Programs Forward Mortgages 8. Programs and Products
      - 203(k) Rehabilitation Mortgage Insurance Program (04/10/2025) Handbook 4000.1
      420 Last Revised: 11/26/2025 If the Mortgagee considers the Mortgage to be in
      default for failure to start or complete work, and the Mortgage is not in payment
      default, the Mortgagee must apply any unused rehabilitation funds toward the
      principal amount. xviii. Rehabilitation Escrow Account When the Mortgage closes,
      the Mortgagee must place all proceeds designated for the rehabilitation, including
      the Contingency Reserve, inspection fees and any Mortgage Payments, in an interest-bearing
      escrow account. • The Mortgagee must pay the net income earned by the rehabilitation
      escrow account to the Borrower through an agreed upon method of payment. • The
      Mortgagee may allow net income to accumulate and be paid in one lump sum after
      completion of the rehabilitation. • The Mortgagee that is the custodian of the
      repair escrow funds is responsible for ensuring all funds from the escrow account
      are properly distributed. (A) Accounting of 203(k) Rehabilitation Funds The
      Mortgagee must utilize an accounting system that records all transactions from
      the rehabilitation escrow account and which documents the amount escrowed for
      each of these categories: • repairs • Contingency Reserve • inspection fees
      • title update fees • Mortgage Payments • other fees (i.e., architectural and
      engineering fees, Consultant fees, permits, supplemental origination fee and
      Discount Points on repair costs) The accounting system must provide: • the Borrower’s
      name and property address • the FHA case number • the Closing Date • the scheduled
      completion date • the amount of funds in the rehabilitation escrow account •
      the interest rate provided on the escrow account For each draw on the escrow
      account, the accounting system must record: • a list of Disbursements • the
      number of Days in escrow • the amount of money in the account • the interest
      earned for the applicable time period • the balance of interest remaining in
      the account II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured
      Housing Programs Forward Mortgages 8. Programs and Products - 203(k) Rehabilitation
      Mortgage Insurance Program (04/10/2025) Handbook 4000.1 421 Last Revised: 11/26/2025
      (B) Project Management Mortgagees must ensure work is completed on schedule
      and workmanship is acceptable. When notified of an issue, Mortgagees must intercede
      in disagreements among Borrowers, contractors, or Consultants. (1) Health and
      Safety The Mortgagee must ensure that all health and safety items not in the
      original Work Write-Up or work plan that are discovered during the rehabilitation
      period are addressed by completion of a change order. (2) Change Order Request
      The Mortgagee must obtain form HUD-92577, Request for Acceptance of Changes
      in Approved Drawings and Specifications, from the Consultant or inspector if
      there are any deviations from the Work Write-Up. The Mortgagee must approve
      the change order before any work can be done. (C) Escrow Administration The
      Mortgagee is fully responsible for authorizing draw inspections, managing the
      rehabilitation escrow account, and approving the associated draws from the account.
      It is the Mortgagee’s responsibility to ensure that any inspections are completed
      in a quality and timely manner, regardless of who performs the inspections.
      (1) Release of Funds The Mortgagee may release funds only when repairs and improvements
      per the draw request, whether made by the contractor or Borrower, meet all federal,
      state, and local laws, codes and ordinances, including any required permits
      and inspections. The Mortgagee may release funds for lead-based paint stabilization
      only when a state- or EPA-certified lead-based paint inspector, certified risk
      assessor or sampling technician, independent of the firm that performed the
      stabilization, performs the clearance examination and clearance is obtained.
      For an existing Structure moved to a new foundation or a Structure that will
      be elevated, the Mortgagee must not release mortgage proceeds for the existing
      Structure on the non-mortgaged Property until the new foundation has been properly
      inspected and the Structure has been properly placed and secured to the new
      foundation. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured
      Housing Programs Forward Mortgages 8. Programs and Products - 203(k) Rehabilitation
      Mortgage Insurance Program (04/10/2025) Handbook 4000.1 422 Last Revised: 11/26/2025
      The Mortgagee must obtain Lien Waivers, or equivalent, at the time of any Disbursement
      of funds to ensure the validity of the first lien on the Property. If all Work
      Items performed by a contractor have not been completed at the time of draw
      request, the Mortgagee must obtain a partial conditional Lien Waiver for the
      Work Items that have been completed for each draw request. For repairs made
      by the Borrower under a self-help agreement, the Mortgagee is permitted to release
      funds for materials only. When the rehabilitation escrow account includes Mortgage
      Payment Reserves, the Mortgagee must make monthly Mortgage Payments directly
      from the interest- bearing reserve account. Once the Property is able to be
      occupied, application of the Mortgage Payment Reserves will cease. Mortgage
      Payment Reserves remaining in the reserve account after occupancy of the Property
      must be used to reduce the mortgage principal. (a) Draw Request The Mortgagee
      must obtain an executed form HUD-9746-A, Draw Request Section 203(k), from the
      203(k) Consultant, or from the Borrower when there is no 203(k) Consultant,
      requesting the release of escrow funds for completed Work Items. The Mortgagee
      must review and approve each draw request to ensure that the work for which
      funds are being requested has been completed satisfactorily and that the form
      has been properly executed by the Borrower, contractor and Consultant, if any.
      The Mortgagee may not approve a draw request for work that is not yet complete.
      The Mortgagee may not approve draw requests for materials for work that is not
      completed, except for: • materials costs for items prepaid by the Borrower in
      cash or by the contractor, where a contract is established with the supplier
      and an order is placed with the manufacturer for delivery at a later date; and
      • up to 50 percent of materials costs for items, not yet paid for by the Borrower
      or contractor, where a contract is established with the supplier and an order
      is placed with the manufacturer for delivery at a later date. (b) Change Orders
      Work must be 100 percent complete on each change order item before the release
      of funds for the Work Items from the rehabilitation escrow account. II. ORIGINATION
      THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward
      Mortgages 8. Programs and Products - 203(k) Rehabilitation Mortgage Insurance
      Program (04/10/2025) Handbook 4000.1 423 Last Revised: 11/26/2025 (c) Holdbacks
      The Mortgagee must hold back 10 percent of each draw request prior to release
      of funds from the rehabilitation escrow account. Exception When a subcontractor
      is 100 percent complete with a Work Item, the work completed is acceptable to
      the inspector, and the contractor and subcontractor provide the necessary Lien
      Waivers, or equivalent, the Mortgagee is not required to hold back funds; the
      Mortgagee has discretion to hold back funds if not required. (d) Timeliness
      of Release The Mortgagee must release funds within five business days after
      receipt of a properly executed draw request and title update when necessary.
      (i) Standard 203(k) Release of Funds Maximum Draw Requests The Mortgagee may
      approve a maximum of five draw requests (four intermediate and one final). Contingency
      Reserve To allow use of contingency funds for improvements other than health
      and safety when rehabilitation is incomplete, the Mortgagee must determine that
      it is unlikely that any health or safety deficiency will be discovered, and
      that the Mortgage will not exceed 95 percent of the After Improved Value. When
      the rehabilitation is complete, the Borrower may use the Contingency Reserve
      account to fund additional improvements not included in the original Work Write-Up.
      The Mortgagee must obtain a change order detailing the additional improvements,
      including the costs of labor and materials. The Mortgagee must inform the Borrower
      in writing of the approval or rejection of the request to use funds from the
      Contingency Reserve account for additional improvements within five business
      days. Method of Payment The Mortgagee will release escrow funds upon completion
      of the rehabilitation in compliance with the Work Write-Up. II. ORIGINATION
      THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward
      Mortgages 8. Programs and Products - 203(k) Rehabilitation Mortgage Insurance
      Program (04/10/2025) Handbook 4000.1 424 Last Revised: 11/26/2025 The Mortgagee
      must issue checks to both the Borrower and contractors as co-payees, unless
      the Borrower provides written authorization, at each draw, to issue the check
      directly to the contractor. The Mortgagee may issue the check directly to the
      Borrower alone if the release is for: • materials for work performed under a
      self-help agreement; or • materials for items prepaid by the Borrower under
      contract with the supplier. (ii) Limited 203(k) Release of Funds Maximum Number
      of Draw Requests The Mortgagee may approve a maximum of two draw requests per
      contractor or the Borrower (if acting as the contractor). When necessary, the
      Mortgagee may arrange a payment schedule, not to exceed two releases, per specialized
      contractor (an initial release plus a final release). Total Repair Costs Less
      Than or Equal to $15,000 The Mortgagee must ensure that the repairs and/or improvements
      have been completed by obtaining contractor’s receipts or a signed Borrower’s
      Letter of Completion. The Mortgagee is not required to perform or have others
      perform inspections of the completed work. The Mortgagee may choose to obtain
      or perform inspections if they believe such actions are necessary for program
      compliance or risk mitigation. If the Mortgagee determines that an inspection
      by a third party is necessary to ensure proper completion of the proposed repair
      or improvement item, the Mortgagee may charge the Borrower for the costs of
      no more than two inspections per contractor. Total Repair Costs Exceeding $15,000
      The Mortgagee must ensure that the repairs and/or improvements have been completed
      by performing an inspection or by obtaining an inspection by a third party to
      determine that the repairs have been satisfactorily completed. The Mortgagee
      must obtain a signed Borrower’s Letter of Completion. II. ORIGINATION THROUGH
      POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward Mortgages
      8. Programs and Products - 203(k) Rehabilitation Mortgage Insurance Program
      (04/10/2025) Handbook 4000.1 425 Last Revised: 11/26/2025 Contingency Reserve
      The Mortgagee must ensure funds escrowed in the Contingency Reserve are used
      solely to pay for the proposed repairs or improvements and any unforeseen items
      related to these repair items. Method of Payment The Mortgagee will release
      rehabilitation escrow funds upon completion of the rehabilitation in compliance
      with the work plan. The Mortgagee may issue checks solely to the contractor,
      or issue checks to the Borrower and the contractor as co-payees. The Mortgagee
      may issue the check directly to the Borrower alone if the release is for: •
      materials for work performed under a self-help agreement; or • materials for
      items prepaid by the Borrower under contract with the supplier. (2) Final Escrow
      Closeout The Mortgagee must include the interest earned in the final payment
      on the rehabilitation escrow account and may include the total of all Holdbacks.
      However, if it is required to protect the priority of the security instrument,
      the Mortgagee may retain the holdback for a period not to exceed 35 Days (or
      the time period required by law to file a lien, whichever is longer), to ensure
      compliance with state Lien Waiver laws or other state requirements. (a) Standard
      (i) Standard 203(k) Before final release of rehabilitation escrow funds, the
      Mortgagee must approve the final inspection and draw request signed by the Consultant,
      contractor, and Borrower. (ii) Limited 203(k) Before a final release is made
      to any contractor, the Mortgagee must determine that all work by the contractor
      has been completed, is acceptable by the Borrower, and all necessary inspections
      have been made with acceptable documentation. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      A. Title II Insured Housing Programs Forward Mortgages 8. Programs and Products
      - 203(k) Rehabilitation Mortgage Insurance Program (04/10/2025) Handbook 4000.1
      426 Last Revised: 11/26/2025 (b) Required Documentation for Both Standard 203(k)
      and Limited 203(k) The Mortgagee must: • obtain the Borrower’s Letter of Completion
      signed by the Borrower indicating satisfaction with the completed work and requesting
      a final inspection and final release of funds; • obtain a CO, or equivalent,
      if required by the local jurisdiction; • obtain all inspections required by
      the local jurisdiction; • complete the Final Release Notice authorizing the
      final payment; • provide the Mortgagee’s extension approval if applicable; and
      • obtain a release of any and all liens arising out of the contract or submission
      of receipts, or other evidence of payment covering all subcontractors or suppliers
      who could file a legal claim. (3) Contingency Release The Mortgagee must inform
      the Borrower of its approval or rejection of the Borrower’s request for funds
      to be made available from the Contingency Reserve account for the purpose of
      improvements. A Borrower who established the Contingency Funds with their own
      funds may receive a refund of their funds, or may request the remaining funds
      be applied toward the principal balance. For Standard 203(k), the Mortgagee
      must either make funds available for additional improvements or apply the funds
      toward the principal balance if the Contingency Reserve was financed. For Limited
      203(k), the Mortgagee must apply the funds toward the principal balance if the
      Contingency Reserve was financed. (4) Mortgage Payment Reserve Mortgage Payment
      Reserves remaining in the reserve account after the Final Release Notice is
      issued must be used to reduce the mortgage principal. (5) Escrow Closeout Certification
      (a) Standard After the rehabilitation escrow account is closed, the Mortgagee
      must complete the Escrow Closeout Certification screen in FHAC within 30 Days
      after the escrow account is closed. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      A. Title II Insured Housing Programs Forward Mortgages 8. Programs and Products
      - 203(k) Rehabilitation Mortgage Insurance Program (04/10/2025) Handbook 4000.1
      427 Last Revised: 11/26/2025 (b) Required Documentation The Mortgagee must certify
      that the following documents were reviewed and verified for accuracy: • Final
      Release Notice • Borrower’s Letter of Completion • title update/Lien Waivers
      • draw request forms and inspection reports • change orders • Mortgagee accounting
      of the rehabilitation escrow account and payment ledgers • contingency release
      letters xix. Quality Control HUD will hold Mortgagees and 203(k) Consultants
      fully accountable for the mortgage proceeds. Mortgagees must exercise due diligence
      with regard to the full scope of the 203(k) Consultant’s services. Standards
      for the 203(k) Consultant’s performance must be clearly defined in the Mortgagee’s
      Quality Control Plan and should be provided to each Consultant that the Mortgagee
      relies on in the 203(k) program. Mortgagees must evaluate and document the performance
      of these Consultants on at least an annual basis, to include a review of the
      Consultant''s actual work product. xx. Servicing (A) Delinquencies If the Mortgage
      is Delinquent, the Mortgagee may refuse to make further releases from the rehabilitation
      escrow account. Mortgagees must treat Mortgages in forbearance, where the Borrower
      is complying with the terms of the forbearance, as not delinquent for the purpose
      of administering repair escrow. (B) Payment Default The project must stop if
      the Mortgage is in payment Default. The Mortgagee must obtain an inspection
      of all repairs that have been completed up until this point by the 203(k) Consultant
      for a Standard 203(k), or for a Limited 203(k) by a third party. The Mortgagee
      may approve a release of funds for Work Items that have already been completed
      as of the date the work was stopped. The inspection obtained by the Mortgagee
      must also note any items that are required to be completed to protect the interest
      of the collateral from deteriorating, such as a roof, and health and safety
      items for a Property that is occupied. The Mortgagee must ensure the completion
      of any Work Item that the inspection determines is necessary II. ORIGINATION
      THROUGH POST-CLOSING/ENDORSEMENT A. Title II Insured Housing Programs Forward
      Mortgages 8. Programs and Products - 203(k) Rehabilitation Mortgage Insurance
      Program (04/10/2025) Handbook 4000.1 428 Last Revised: 11/26/2025 to protect
      the occupants and/or the collateral. The Mortgagee may use the services of the
      mortgagor’s contractor, if appropriate, or may engage the services of another
      qualified contractor to complete the Work Item. The Mortgagee may approve a
      subsequent release of funds for that Work Item. The Mortgagee has the option
      to call the Mortgage due and payable. If the default is cured, the project may
      resume. (C) Bankruptcy The Mortgagee may not approve further advances if the
      Borrower declares bankruptcy unless otherwise required by law or as needed to
      protect FHA’s first lien position. The Mortgagee must obtain an inspection of
      all repairs that have been completed by the 203(k) Consultant for a Standard
      203(k) or for a Limited 203(k) by a third party. The Mortgagee may approve a
      release of funds for Work Items that have already been completed as of the date
      the work was stopped. (D) Foreclosure of Mortgage during Rehabilitation Period
      In the event of a foreclosure during rehabilitation, the Mortgagee must obtain
      a final inspection to determine the amount of work that has been completed since
      the start of construction and the cost for the work. Using a format similar
      to the Final Release Notice, the Mortgagee will authorize release of rehabilitation
      escrow funds for the completed work and holdbacks on any previous Disbursements.
      If funds remain in the rehabilitation escrow account, the Mortgagee will reduce
      the amount of claim (unpaid mortgage principal balance) by the unexpended funds
      in the rehabilitation escrow account. The Mortgagee must submit a copy of the
      Final Release Notice with any insurance claim. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      A. Title II Insured Housing Programs Forward Mortgages'
  judgment: false
