I recently read an article that portrayed the 1970s as an age of pivotal change. Novelist Tom Wolf even named the 1970s the “Me Decade.” During this time FHA/HUD rolled out a new housing initiative they named 203(k) to combat the issue of America’s aging housing stock.
The American Housing Industry experienced a boom in construction and home ownership in post-war America, from the late 1940s through the 1950s. This necessitated the creation of a financing option to upgrade, modernize, and repair this inventory of homes that were now 30+ years old. Thus the FHA 203(k) was born.
Over the last five years, FHA has endorsed and insured 93,321 homes under the 203(k) program. That is an annual average of 18,664 families that were able to purchase a new home or refinance their existing home. Through the use of this low cost, fixed rate, government insured loan, families were able to personalize and customize their home to maximize their comfort and enjoyment.
On September 14, 2015, FHA introduced exciting new enhancements to expand the use of their 203(k) financing option. Illustrated below are just a few of these new program enhancements:
- For many years HUD tried to discourage the use of their “Self Help” feature, where a homeowner is allowed to act as the General Contractor for their home improvement project. The new changes will open up this opportunity to more individuals who can demonstrate either their work experience in the home construction industry or in remodeling/rehabilitation of “other properties they have owned.” This opportunity will also be available to both their “Standard Option for larger more complicated projects” and their “Limited Option for smaller, less complicated projects.”
- The process of distributing funds to a contractor (i.e. The Draw Process) has also been improved. On larger projects that require a trained HUD Consultant to manage the project, a lender can now release funds at closing to either the contractor or the homeowner for material cost that has been either prepaid or pre-ordered from a supplier like Home Depot, Lowes, Sears, etc. This is a major improvement over the previous requirements where only “special customized materials” could be advanced at closing.
- FHA 203(k) still allows a homeowner to purchase a home, tear it down, and rebuild a new home on the existing foundation. In addition to this, the updated program allows a homeowner to modify an existing foundation (i.e. raise the elevation of the house for flood insurance purposes) providing that the existing structure is intact. This means you can raise and renovate a house; you just can’t tear down a house and rebuild it on a modified foundation. This is a big relief for families still struggling with homes damaged from Hurricane Sandy on October 2012, as well as other areas where flooding becomes an issue.
- The FHA 203(k) offers two home renovation financing options so home buyers and homeowners can pick the option that best fits their remodeling project. Those two options are called “The Standard Option” and “The Limited Option.” Both options offer the same product and pricing parameters; the only difference is in the cost of the project and the scope of work with the project. Below is a brief description of each:
– The Standard Option may be used for improvement projects where the scope of the project consists of major construction-related activity. An easy way to think of this is in terms like: construct, build, demolish, etc. It can still be used for repairs and upgrades for items like kitchen and bath remodeling, installing hardwood floors, installing a new roof, well, septic, etc., but it also can be used to move load-bearing walls, build additions, add additional living space, etc. There is no dollar limit to the total cost of your project (actually there is a limit, but that limit is only based on the after-improved market value of your home). This is a great option for large, complicated projects.
– The Limited Option may be used for smaller, less complicated projects where the scope of work consists of minor repairs and upgrade functions. An easy way to think of this is in terms like: modernize, upgrade, repair, and replace. The type of improvements that can be done includes kitchen and bath remodeling, installing new roofs, deck and patios, finishing a basement or attic, paint and flooring, new HVAC system, etc. You can do a lot with this option, but you cannot do any structurally related activity. The total cost of renovations cannot exceed $35,000. This is a great option for true remodeling projects with limited cost.
I hope this illustrates that the 203(k) financing options offer you the ability to choose your home based on the perfect location (close to work, quality of schools, quality of neighborhood, close to friends and family) even if it’s not exactly the perfect structure to begin with. With these options a less than perfect house can be personalized and customized it to make it the perfect home.
If this appeals to you or you desire additional information of these financing options, please reach out to me at smarshall@HomeBridge.com.
We don’t just close loans; we help build dreams, one family at a time.
About HomeBridge Financial Services:
HomeBridge Financial Services, Inc. is a leader in home mortgages, which are our sole focus. Our team’s experience and expertise in renovation lending enable us to make the loan process fast, easy and understandable for our customers. With a renovation loan from Homebridge, you can turn a house into your DREAM home! Renovation loans are available for purchases and refinances.