HUD Handbook 4000.1 Part II.A.8.a — Section 203(k) Rehabilitation Mortgage Insurance Program

HUD Handbook 4000.1 Part II.A.8.a

8. Programs and Products a. 203(k) Rehabilitation Mortgage Insurance Program (04/10/2025) 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 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: • Energy Efficient Mortgages • Solar and Wind Technologies 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 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: 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.

Source: HUD Handbook 4000.1 II.A.8.a.i — 203(k) Overview · source URL · snapshot 3bf33edadcf6461d