Underwriters make sure you have the allowable repairs for a 203(k) limited.

Written By: Glenn Michaels, Op-Ed Writer

The Single Family Handbook 4000.1 changed the name of the Streamline 203(k) program to the “limited program. Properties being reviewed for the 203(k) program that have commercial influences as contained in a Mixed-Use property, One unit must be owner occupied primary unit and the non residential portion of the property cannot exceed 49% of the square footage. The health and safety of the residential units and residents must be of primary concern. If there is a question of the health and safety contact HUD as you would be surprised of the properties HUD has rejected for health and safety concerns.

The Single Family Handbook 4000.1 fully describes the allowable repairs for the “limited” 203(k) program. Keep in mind that the aggregate repairs including fees cannot exceed $34,000.00. Usually the actual repair costs will be equal or lower than $30,000.00 due to fees in the 203(k) work up.

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Below are the allowable repairs under the “limited” 203(k) program:
•    Elimination of health and safety hazards.
•    Repair/replace well/septic system.
•    Connection to public water and sewer systems.
•    Repair or replace plumbing, heating,, air conditioning and electrical systems.
•    Make improved functionality and modernization,
•    Elimination of obsolescence,
•    Install or repair of roofing, siding, leaders and gutters and downspouts,
•    Making energy conservation improvements,
•    Making the home handicapped accessible,
•    Repair or replace fences, walkways and driveways.
•    Install new refrigerator, cook top, oven, dishwasher, built in microwaves and washer/dryer,
•    Repair or removal of in ground swimming pool,
•    Repair and/or replace exterior decks, patios and porches.

The “limited” 203(k) can be done with or without a FHA 203(k) consultant also known as a “Preplanner”.   Most of the 203(k) limited improvements are done without a Preplanner. 
This is a onetime close. Money is for the purchase of a home and for improvements or refinance and improvements.  

Eligible properties are:

•    1 – 4 family owner occupied primary residences,
•    Condominiums in a FHA approved condominium project,
•    Planned Unit Development (PUDS) unit,
•    Mixed Use properties
•    Manufactured Homes

Remember when underwriting a “limited” 203(k) loan there can be no “structural” changes. An example is changing a teo family into a three family.

Always complete the maximum mortgage worksheet for a 203(k) loan to determine the loan amount and then the HUD – 92900 – LT. If you do it in reverse you will never get the proper mortgage amount.

The new Single Family Handbook 4000.1 has an entire section available for review so you can underwrite these loans properly.

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. 

Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.