What expense items may be financed in a Limited 203(k) transaction?

LIMITED 203(K) FINANCEABLE REPAIR & IMPROVEMENT COSTS & FEES:
•     costs of construction, repairs and rehabilitation;  
•     inspection fees performed during the construction period, provided the fees are reasonable and customary for the area; 
•     title update fees; and 
•     permits.  

Any costs for Energy Efficient Mortgages (EEM) 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) Loan Agreement. 

LIMITED 203(K) FINANCEABLE CONTINGENCY RESERVE:
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. 

LIMITED 203(K) FINANCEABLE MORTGAGE FEES
The mortgagee may include the following fees and charges in the rehabilitation Cost Estimates. 
•     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. 
•     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. 

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 
•     203(k) Consultant fee 
•     a Feasibility Study  

For additional information see Handbook 4000.1 II.A.8.a.vii(D)-(G) at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh


All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.


Topic Number: KA-04955