What Can You Do With A FHA-203(k) Dream Loan?
You want to buy a house that needs a bunch of work OR you own a nice older house in a good neighborhood, but it’s getting worn, dated or in need of some costly. What do you do?
One solution is to finance Or refinance your fixer-upper under the FHA 203k. This mortgage program allows you to borrow money to pay for the home improvements, and roll the cost right into the life of the mortgage loan. This spreads the cost of the work over the life of the loan. Here's a look at 10 FHA 203k solutions for that fixer-upper:
- Add a Front or Side Porch - A place to sit and unwind without being eaten up by bugs.
- Add, Replace or Enlarge a Deck – In nice weather there's no better place to sit, relax or fire up the grill with a couple of friends over and a few cocktails than a nice deck. Turn that “dreary area" into a great place to spend time with your friends and family.
- Add Another Bath - You only have 1-bathroom in the house .. Turn it into a 2 bathroom home OR remodel your dull master bath AND make it a master bathroom dream suite.
- Remodel that Old Obsolete Kitchen - And add shiny new stainless steel appliances, an eating nook, cooking island, new lighting and replace the cabinets. Update that 1965 worn out look with a brand new kitchen! Appliances can be part of your 203k loan.
- New Floor Coverings (carpet, hardwood, tile) – Replace that worn, torn, stained old carpet. Maybe the kitchen has carpet and you want tile. It’s covered in the FHA 203k.
- Replace or Repair the Roof - Replace the old roof, repair the wood sheathing or framing underneath, it can eliminate leaks, help lower insurance costs. The 203k has you covered.
- Help Get Rid of Mold or Water in the basement or crawlspace - Get rid of mold and waterproof your basement or crawlspace. Turn an unused, ugly and unfinished basement or cellar into a gorgeous finished living area your family will want to spend time in!
- Get Rid Of Lead-Based Paint - FHA will typically require getting rid of old lead-based paint before you move in a house. The 203k can help for the removal and repainting.
- Replace Windows and Doors - Whether they’re worn, you don’t like them OR you want you want more energy-efficient windows and doors. With the 203ks its eligible.
- Want to Make a House Handicap OR Senior Accessible – You can do ramps, grab bars, wider hallways …. accessibility changes are covered under the FHA 203k.
These are just a FEW of the MANY projects or renovations the FHA 203k can handle!
Some Required Improvements for a 203k Loan
All rehabilitation construction and/or additions financed with Section 203k mortgage proceeds must comply with the following:
A. Cost Effective Energy Conservation Standards
(1) Addition to existing structure. New construction must conform with local codes and HUD Minimum Property Standards in 24 CFR 200.926d.
(2) Rehabilitation of Existing Structure. To improve the thermal efficiency of the dwelling, the following are required:
a) Weather-strip all doors and windows to reduce infiltration of air when the existing weather-stripping is inadequate, worn out or nonexistent.
b) Caulk or sealant at all openings, cracks, utility penetrations or joints in the building envelope to reduce air infiltration.
c) Insulate all openings in exterior walls where the cavity has been exposed as a result of the rehabilitation. Insulate ceiling areas where necessary
d) Adequately ventilate attic and crawl space areas. For additional information and requirements, refer to 24 CFR Part 39.
(3) Replacement Systems.
a) Heating, ventilating, and air conditioning system supply and return pipes and ducts must be insulated whenever they run through unconditioned spaces.
b) Heating systems, burners, and air conditioning systems must be carefully sized to be no greater than 15 percent oversized for the critical design, heating or cooling, except to satisfy the manufacturer's next closest nominal size.
(4) Smoke Detectors. Each sleeping area must be provided with a minimum of one approved, listed and labeled smoke detector installed in the sleeping room.
(5) Minimum 100amp electrical service.
(6) The consultant who prepares the work write-up and cost estimate (or an architect, engineer or home inspection service, etc ) needs to examine the property to assure:
(a) there are no rodents, dryrot, termites and other infestation;
(b) there are no defects that will affect the health, safety or welfare of the occupants;
(c) the adequacy and function of the existing structural, heating, plumbing, electrical and roofing systems; and
(d) if upgrading of thermal protection is necessary (insulation).
FHA Appraisers Requirements
Realtors and home buyers are always wondering what standard FHA Appraiser’s use when approving or rejecting a home for FHA financing. As a Home Inspector, they call me for the explanations. I am not an FHA Appraiser. My main source for the following information is the "FHA Guidebook for Appraisers". The following is a quick list of many common reasons for a home's rejection by an FHA Appraiser.
- Must have access to all of the crawl space areas.
- Major water build-up in the crawl space is not allowed and must be remedied.
- Any areas of wood rot / termite damage must be removed and repaired.
- Ventilation & vapor barrier are required.
- At least 18" clearance is required from the floor joists to the ground.
- If the crawl space has been dug out, the earth cannot be disturbed within 1 foot of the stemwall or pier supports. If the earth has been disturbed, then a retaining wall should be installed.
- If a sump pump is used, it MUST be hard wired. Extension cord hook-ups are an extreme safety hazard and cannot be used.
- Access must be provided (except where there is no attic space such as with some vaulted ceilings or in mobile homes).
- The attic access opening must be at least 22" x 30".
- Attic must be adequately ventilated, providing positive airflow with no dead airspace.
- The roof must have at least 3 years of remaining life.
- Estimated life expectancies of various roofing materials:
Rolled Roofing:....................NOT acceptable to FHA.
Composition Roofs:............ Average lifespan 16 to 20 years
Built-up Roofs:.................... Average lifespan 10-13 years
Wood Shake or Shingle Roof:..................... Average lifespan 16-22 years
Torch Down Roofs:............. Acceptable w/certification that roof was installed per manufacturer's specifications.
Metal Roofs:......................... Acceptable w/certification that roof was installed per manufacturer's specifications.
- Roofing material on slopes of 2½ :12 or less MUST be installed by a licensed roofer using built-up roofing that meets the Uniform Building Code. Rolled roofing is not acceptable.
- FHA will not accept more than 2 layers of roofing material. If 2 layers of roofing exist and re-roofing is required, all of the old roofing must be stripped and removed as part of the re-roofing. The placement of composition shingles over wood shakes or shingles is not acceptable.
- A single main shut-off breaker is required at electrical panel.
- If more than 1 breaker must be tripped to kill power, a new service panel is required.
- The main service must be at least 100amp. If it is less, a new service is required.
NOTE: These electrical requirements eliminate most pre-1960 homes that have not had an electrical upgrade. If FHA is the only financing option, then a 203k program should be considered to finance the improvement.
- The heating and cooling system must have at least 3 years of remaining life.
- Wood stoves or solar heating are not acceptable as the sole heat source.
- NOTE: Coal or wood stoves with automatic stokers are acceptable.
NOTE: These heating requirements may eliminate most pre-1960 homes that have not had a heating system upgrade. If FHA is the only financing option, then a 203k program should be considered to finance the improvement.
HOT WATER HEATER
- The water heater must have at least 3 years of remaining life.
- MUST have an installed Temperature Pressure Relief Valve (TPRV).
- The TPRV must have a discharge line that drains to the outside of the home OR within 6” of the floor in a basement. The drain line cannot be reduced in size from the valve outlet (3/4”). In the case of a basement installation with a floor drain, the discharge line must extend to within 6" to 24" from the floor.
NOTE: The Safety Release Valve / Temperature Pressure Relief Valve upgrade is usually under $150 for the valve itself plus installation.
- All properties built prior to 1978 should be considered as target housing for lead-based paint hazards. Defective peeling/flaking paint on any interior or exterior surface must be identified and repaired following the EPA guidelines for Lead Paint Repair.
- Homes with septic systems are acceptable as long as it operates properly.
- Evidence of recent septic tank pumping / checking of tank and fields required.
WINDOWS FOR SLEEPING ROOMS
- Basement escape or rescue windows shall have a minimum net clear openable area of 5.7 square feet. The minimum net clear openable height is 24" and width is 20". The maximum escape window sill height off a finished floor is 44".
NOTE: These window egress requirements may eliminate some pre-1960 homes that have not had a window upgrade. Small basement windows can be enlarged and upgraded. It has been my experience that some FHA Appraisers overlook this requirement unless the windows are inoperable or are set into an underground basement with 48"+ sill height. If FHA is the only financing option, then a 203K program can be considered to finance the improvement.
- Components, systems, etc that are present are either operational OR repaired OR removed (Example: A cracked fireplace flue ….. it is not satisfactory to simply NOT use it. The fireplace flue must be relined, repaired, OR torn down, removed or plugged permanently, like with concrete).
- Pools have a $1,500 limit on service and repairs (over that ….. it is terminated or buyer can put extra $$$$ into the transaction to make it operational).
- Outbuildings if on rural property …. If the appraiser gives them value, they must be reviewed for health and safety issues, remaining life of a furnace, water heater, roof, peeling paint (if built before 1978), broken glass and pest or termite presence, etc.