What expense items may be financed on a Standard 203(k) transaction?

The following expense items may be included in the  STANDARD 203(K) FINANCEABLE REPAIR & IMPROVEMENT COSTS  and  FEES:

•    costs of construction, repairs, rehabilitation, and Consultants Work Write-Up; 
•    architectural/engineering professional fees; 
•    the 203(k) Consultant fee subject to the limits in the 203(k) Consultant Fee Schedule section; 
•    inspection fees performed during the construction period, provided the fees are reasonable and customary for the area; 
•    title update fees; 
•    permits; and 
•    a Feasibility Study, when necessary to determine if the rehabilitation is feasible.   

Any costs for Energy Efficient Mortgages 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. 

STANDARD 203(K) FINANCEABLE CONTINGENCY RESERVE:

The mortgagee must refer to the chart in Handbook 4000.1 II.A.8.a.vi(E) to determine when a Contingency Reserve is required.  The minimum and maximum Contingency Reserve is established as a percentage of the Financeable Repair and Improvement Costs. 

STANDARD 203(K) FINANCEABLE MORTGAGE PAYMENT RESERVES:
A mortgagee may establish a financeable Mortgage Payment Reserve, not to exceed six months of mortgage Payments. The Mortgage Payment Reserve may include mortgage payments only for the period during which the property cannot be occupied. The number of mortgage payments cannot exceed the completion time frame required in the Rehabilitation Loan Agreement.  For multi-unit properties, if one or more units are occupied, the Mortgage Payment Reserve may only include the portion of the mortgage payment attributable to the units that cannot be occupied. 

STANDARD 203(K) FINANCEABLE MORTGAGE FEES: 
The lender may finance the following fees and charges
•    Origination Fee
The mortgagee may finance 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, Financeable Contingency Reserves and Financeable Mortgage Payment Reserves.
•    Discount Points
The mortgagee may finance a portion of the borrower-paid discount points not to exceed an amount equal to the discount point percentage multiplied by the total of Financeable Repair and Improvement Costs and Fees, Financeable Contingency Reserves and Financeable Mortgage Payment Reserves. 

For additional information see Handbook 4000.1 II.A.8.a.vi(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-04961