Written By: Glenn Michaels, Op-Ed Writer
The new Single Family Handbook (SFH) 4000.1 has attempted to simplify the program for everyone.
To learn about the FHA 203(k) program go to page 349 and ending on page 383 of the Single Family Handbook 4000.1 for all of the requirements to do a loan under the FHA 203(k) program.
The first thing that I noticed was the renaming of the two programs administered under the 203(k) program. The programs are now called “203(k) standard” and the limited 203(k).
The seasoned FHA underwriter now must remember that programs have new names.
The new guideline pages state that the lender must use a FHA Consultant for all 203(k) loans that fall under the “standard” program. The guidelines also state that a 203(k) consultant does not have to be used for the 203(k) limited loan.
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The 203(k) limited program does not allow any structural changes and there is a limitation of repairs in the amount of $35,000.00 which includes certain fees. There is no minimum dollar amount of repairs.
Loans under the 203(k) standard can have structural changes and must have a minimum of $5,000.00 of repairs. There is no maximum dollar amount of repairs providing the FHA Consultant signs off on the repairs and the maximum loan amount is not exceeded when using the Maximum Mortgage Amount for a 203(k) loan.
FHA Consultants must be approved by the FHA and each approved Consultant can be found in the FHA Connection. All approved FHA Consultants must have a “P” number in the FHA Connection. All FHA write ups regarding the scope of the work and draw requests will be signed by the FHA Consultant followed by the FHA Consultant’s “P” number.
As a general rule the 203(k) program is not available for the installation of a luxury item. However you can use a 203(k) to repair a luxury item. One example is with a swimming pool. You cannot install a new swimming pool as it is considered a luxury. However if you are repairing a pool already installed that is permitted.
Keep in mind that all properties covered by FHA insurance must meet minimum property standards. Properties not meeting the minimum property standards can meet the minimum standards with a 203(k) mortgage.
The 34 pages devoted to the 203(k) program now clearly explains the 203(k) program and all underwriter’s should now have enough information to underwrite 203(k) loans.
In addition to the standard and limited 203(k) programs the section also explains the Energy Efficient Mortgage (EEM) and a new energy program coming out in March of 2016.
If you have taken my classes I spend some time on the 203(k) program so when you get a 203(k) file to underwrite it is not a mystery.
About The Author
Glenn Michaels - As an op-ed writer, Glenn Michaels is a mortgage underwriting instructor for CampusUnderwriter (www.MortgageUnderwriter.org). As a BBA & FHA DE Underwriter, Glenn is a Pace University graduate who also graduated from New York University’s School of Mortgage Finance. Glenn has conducted numerous training classes and has worked in the mortgage banking industry for 38 years.