HUD & FHA Loan Programs and Grants! 18 posts by 3 users

Posted: 03/28/2008 at 11:51AM

Hello there everyone-

If you are all to proud to ask what is out there to benefit you and your family then I will just list them off for you. This is not the case in most situations though, most people do not even know that there are government loan programs and grants available to them. Listed below is some info I thought that the average (not for investors, but do not get worried I have some really awesome stuff instore for you people too) homebuyer would enjoy and benefit from. Thanks and enjoy!

[size=18]Mortgage Insurance for One to Four Family Homes - Section 203(b) [/size]

Summary:
Through this program, HUD's Federal Housing Administration (FHA) insures mortgages made by qualified lenders to people purchasing or refinancing a home of their own.

Purpose:
FHA's mortgage insurance programs help low- and moderate-income families become homeowners by lowering some of the costs of their mortgage loans. FHA mortgage insurance also encourages lenders to make mortgages to otherwise creditworthy borrowers and projects that might not be able to meet conventional underwriting requirements, by protecting the lender against default on mortgages for properties that meet certain minimum requirements--including manufactured homes, single-family and multifamily properties, and some health-related facilities.

Section 203(b) is the centerpiece of FHA's single-family mortgage insurance programs—the successor of the program that helped save homeowners from default in the 1930s, that helped open the suburbs for returning veterans in the 1940s and 1950s, and that helped shape the modern mortgage finance system. Today, FHA One- to Four-Family Mortgage Insurance is still an important tool through which the Federal Government expands homeownership opportunities for first-time homebuyers and other borrowers who would not otherwise qualify for conventional mortgages on affordable terms, as well as for those who live in underserved areas where mortgages may be harder to get. These obligations are protected by FHA's Mutual Mortgage Insurance Fund, which is sustained entirely by borrower premiums.

Type of Assistance:
This program provides mortgage insurance to protect lenders against the risk of default on mortgages to qualified buyers. Insured mortgages may be used to finance the purchase of new or existing one- to four-family housing, as well as to refinance debt. Section 203(b) has several important features:

-- Downpayment requirements can be low. In contrast to conventional mortgage products, which frequently require downpayments of 10 percent or more of the purchase price of the home, single-family mortgages insured by FHA under Section 203(b) make it possible to reduce downpayments to as little as 3 percent. This is because FHA insurance allows borrowers to finance approximately 97 percent of the value of their home purchase through their mortgage, in some cases.

-- Many closing costs can be financed. With most conventional mortgages, the borrower must pay, at the time of purchase, closing costs (the many fees and charges associated with buying a home) equivalent to 2-3 percent of the price of the home. This program allows the borrower to finance many of these charges, thus reducing the up-front cost of buying a home. FHA mortgage insurance is not free: borrowers pay an up-front insurance premium (which may be financed) at the time of purchase, as well as monthly premiums that are not financed, but instead are added to the regular mortgage payment.

-- Some fees are limited. FHA rules impose limits on some of the fees that lenders may charge in making a mortgage. For example, the mortgage origination fee charged by the lender for the administrative cost of processing the mortgage may not exceed one percent of the amount of the mortgage.

-- HUD sets limits on the amount that may be insured. To make sure that its programs serve low- and moderate-income people, FHA sets limits on the dollar value of the mortgage. The current FHA mortgage limit ranges from $172,632 to $312,895. These figures vary over time and by place, depending on the cost of living and other factors (higher limits also exist for two- to four-family properties).

Eligible Participants:
FHA-approved lending institutions, such as banks, mortgage companies, and savings and loan associations, can make insured Section 203(b) mortgages.

Eligible Customers:
Anyone intending to use the mortgaged property as their primary residence is eligible to apply for an FHA insured mortgage through FHA-approved lenders. This program is not open to investors.

Application:
Any person able to meet the cash investment, the mortgage payments, and credit requirements can apply. The program is limited to owner-occupants. Applications are made through an FHA-approved lending institution. Most lenders who use this mortgage insurance product, however, make their requests through a provision known as Direct Endorsement, which authorizes them to consider applications without submitting paperwork to HUD. Borrowers can locate FHA-approved lenders through the searchable listing provided on HUD's homepage.

Technical Guidance:
This program is authorized under Section 203, National Housing Act (12 U.S.C. 1709 (b), (i)). Program regulations are in 24 CFR Part 203. The program is administered by HUD's Office of Housing-Federal Housing Administration.

For More Information:
General—To learn more about this program and other financing options, homebuyers should contact a HUD-approved lender for a searchable listing of approved lenders nationwide, a HUD-approved housing counseling agency.

Visit the FHA Resource Center for more information on all FHA programs.

Link for more info: http://www.hud.gov/offices/hsg/sfh/ins/203b--df.cfm

On the link page you will be able to find HUD approved lenders near you that can help you acheive the loan program for you. You can also find out what the FHA loan limits are for your particular situation (1-4 units) and area.

Note: Please do note that when some of these programs state that it is a single-family program they are speaking of 1 to 4 unit properties. I do not know why HUD considers multi-family 5 units or more but they do so you can still qalify for a single-family program if you have a duplex, triplex, or a quadraplex!

Thank you for your time.

Posted: 03/28/2008 at 02:49PM

Great info, Lito! Keep it up!

Posted: 03/28/2008 at 04:48PM

Hello there everybody-

This is a new program to me but I find it a bit useful and a bitter taste was left in my mouth when I found out that only 3 mortgages were insured under this program for 1996. Take a look at this program for it may benefit you if you fall under its guidelines.

[size=18]Mortgage Insurance for Homes in Outlying Areas (Section 203(i))[/size]

Summary:
Through Section 203(i) HUD's Federal Housing Administration (FHA) insures mortgages made by qualified lenders to individuals purchasing homes in outlying areas, where lack of a normal market could make resale in case of default difficult.

Purpose:
FHA's mortgage insurance programs help low- and moderate-income families become homeowners by lowering some of the initial costs of their mortgage loans. FHA mortgage insurance also encourages lenders to make loans to otherwise creditworthy borrowers and projects that might not be able to meet conventional underwriting requirements, protecting the lender against loan default on mortgages for properties that meet certain minimum requirements.

Section 203(i) is one more tool for expanding homeownership opportunities for borrowers who would not otherwise qualify for conventional loans on affordable terms and who live in historically underserved areas where mortgages may be harder to get. This program is rarely used today--only 3 mortgages were insured under Section 203(i) in FY 1996.

Type of Assistance:
This program provides mortgage insurance to protect lenders against the risk of default on loans to qualified buyers. Insured loans may be used to finance the purchase of proposed, under-construction, or existing one-family housing, or new farm housing on 2 ½ or more acres adjacent to an all-weather public road. Like other FHA mortgage insurance programs, Section 203(i) has several important features:

-- Downpayment requirements can be low. In contrast to conventional mortgage products, which frequently require downpayments of 10 percent or more of the purchase price of the home, single-family mortgages insured by FHA under Section 203(i) make it possible to significantly reduce downpayments. Through this program, FHA insurance allows most borrowers to finance approximately 97 percent of the first $25,000 of a home purchase (including total allowable closing costs), 95 percent of the first $125,000 of the mortgage, and 90 percent of any amount over $125,000. The mortgage may never exceed 98.75 percent of value for properties worth up to $50,000 or 97.75 percent for properties worth more than $50,000.

-- FHA mortgage insurance is not free. Morgagees collect from the borrowers an up-front insurance premium (which may be financed) at the time of purchase, as well as monthly premiums that are not financed, but instead are added to the regular mortgage payment.

-- Some fees are limited. FHA rules impose limits on some of the fees that lenders may charge in making a loan. For example, the lender's loan origination charge for the administrative cost of processing the loan may not exceed one " point" -that is, one percent of the amount of the mortgage (minus the mortgage insurance premium, if it is being financed). In addition, property appraisal and inspection fees are based on what is " reasonable and customary" in a given area.

-- HUD establishes the maximum mortgage term, which is normally 30 years.

-- HUD sets limits on the amount that may be insured. To make sure that its programs serve low- and moderate-income people, FHA sets limits on the dollar value of the mortgage loan. The current limit for the buyer of a one-family home under this program is 75 percent of the loan limit under standard FHA mortgage insurance program, which ranges from $81,548 to $160,950.These figures vary over time and by place, depending on the cost of living and other factors (higher limits also exist for two- to four-family properties).

Eligible Providers:
FHA-approved lending institutions, such as banks, mortgage companies, and savings and loan associations, are eligible for Section 203(i) insurance.

Eligible Customers:
Anyone trying to finance a housing purchase in an outlying area who is able to meet the cash investment, mortgage payments, and credit requirements is eligible to apply for Section 203(i) mortgage insurance. The program is generally limited to owner-occupants.

Application:
Applications are made through FHA-approved lending institutions, who make their requests through a provision known as " Direct Endorsement," which authorizes them to consider applications without submitting paperwork to HUD. Borrowers can locate FHA-approved lenders through the searchable listing provided on HUD's homepage.

Technical Guidance:
This program is authorized under Section 203, National Housing Act (12 U.S.C. 1709, 1715(b)). Program regulations are in 24 CFR Part 203. These regulations, as well as applicable handbooks and notices, are available electronically through HUDCLIPS. Section 203(i) is administered by HUD's Office of Housing-Federal Housing Administration.

For More Information:
Prospective lenders should contact the Director of Single Family Programs at the nearest HUD field office about participating in this program. Loan processing and administration for this and other FHA single-family mortgage insurance products are handled through one of four consolidated Single Family Homeownership Centers.

General-To learn more about this program and other financing options, homebuyers should contact a HUD-approved lender for a searchable listing of approved lenders nationwide. Locate a HUD-approved housing counseling agency through a searchable online list, or call the Housing Counseling Clearinghouse at 1-800-569-4287.

A recent general study, HUD's Analysis of FHA's Single Family Mortgage Insurance Program (Office of Policy Development and Research, 1996), describes this program and its place in today's mortgage finance system. It is available from HUD USER, 1-800-245-2691.

This is a perfect example of why I am bothered at the fact that so much government money is not used every year. Please do take the time to at least acknowledge that these programs exist and thay are here to benefit you and your family as well.

Thanks again people.

Posted: 03/28/2008 at 06:37PM

Hello there everyone-

I have just begun and the party is about to get started, for those of you who can not see the trend I am stating single family (remember HUD views this a one to four units) programs as of right now and will soon be moving onto different programs as well. Here goes!

[size=18][b]Growing Equity Mortgage
Insurance (Section 245(a)) [/b][/size]

Summary:
Section 245(a) enables a household with a limited income that is expected to rise to buy a home sooner by making mortgage payments that start small and increase gradually over time. The increased payments are applied to reduce the principal owed on the mortgage and thus shorten the mortgage term.

Purpose:
HUD’s Federal Housing Administration (FHA) administers mortgage insurance programs that help low- and moderate-income families become homeowners by lowering some of the initial costs of their mortgage loans. FHA mortgage insurance also encourages lenders to make loans to otherwise creditworthy borrowers and projects that might not be able to meet conventional underwriting requirements, protecting the lender against loan default on mortgages for properties that meet certain minimum requirements--including manufactured homes, single-family and multifamily properties, and some health-related facilities.

Like HUD’s Graduated Payment Mortgage Insurance (Section 245), Section 245(a) contributes to these goals by helping first-time buyers and others with limited incomes--particularly young families, who expect their income to rise but may not yet be able to handle all of the upfront and monthly costs involved in homebuying--to tailor their mortgage payments to their expanding incomes and buy a home sooner than they could with regular financing. However, this program adds an innovative twist to this basic product: growing equity mortgages (GEMs) enable the homeowner to apply scheduled increases in monthly payments to the outstanding principal balance of their mortgage and thereby to considerably shorten the term of the mortgage. This reduced term and the faster repayment of principal make GEMs more attractive to lenders and investors than other fixed-rate investments.

Type of Assistance:
GEMs are eligible for insurance under Section 203(b) for one- to four-family homes, Section 203(k) for home purchase or refinancing and rehabilitation, Section 203(n) for shares in cooperatives housing, and Section 234(c) for units in condominiums. GEMs must meet all the requirements of the section under which they are being insured, with certain exceptions.

There are five GEM plans. Each plan provides for the monthly payments to be increased by a fixed percentage during each year of the loan. For the initial year, the monthly payments to principal and interest are based on a 30-year level-payment schedule. Thereafter, the amount of the monthly payments due for the next 12 months will increase each year by between 1 percent and 5 percent, depending upon the plan selected. The actual term of the mortgage will not be more than 22 years and may be less, depending on the GEM plan used and the interest rate. As part of its effort to streamline and terminate obsolete programs, HUD is considering eliminating GEM and removing its regulations.

Eligible Grantees:
FHA-approved lending institutions, such as banks, mortgage companies, and savings and loan associations, can provide Section 245(a) insurance through HUD Field Offices.

Eligible Customers:
Anyone who intends to use the mortgaged property as their primary residence and who expects to see their income rise appreciably in the future is eligible to apply for Section 245 mortgage insurance.

Application:
Applications are made through an FHA-approved lending institution. Most lenders that use this mortgage insurance product make their requests through a provision known as " Direct Endorsement," which authorizes them to consider applications without submitting paperwork to HUD.

Technical Guidance:
This program is authorized under Section 245(a), National Housing Act, as amended (12 U.S.C. 17152-10(a)). Its regulations, as well as handbooks, notices, and letters relevant to this program, are available through HUDCLIPS. Section 245(a) is administered by HUD’s Office of Housing-Federal Housing Administration.

For More Information:
To learn more about this program and other financing options, homebuyers should contact a HUD-approved lender for a searchable listing of approved lenders nationwide, a HUD-approved housing counseling agency, or the toll-free FHA Mortgage Hotline, 1-800-CALLFHA.

Link to HUD: http://www.hud.gov/offices/hsg/sfh/ins/245a--df.cfm

Another profitable loan program offered by FHA for the benefit for low & moderate income families that expect their incomes to increase over the years. Who wouldn't want their mortgage to be paid off a lot sooner than the bank would have you? I know I would!

Thanks again everyone.

Posted: 03/28/2008 at 06:58PM

I'm back once again-

Now this one is a true favorite for me due to the fact that if you read between the lines and ask the right questions you will find what you need. After much research I have found out that this program is meant only for owner occupants, but due to the fact that there are areas in California (check with you state if they provide the same or you will see when you bid on a HUD home if you can use this program) that need much revitalization and new growth FHA has allowed investors to use this program if a home falls in one of these areas.
www.hud.gov/cr

[size=18]Rehabilitation Mortgage Insurance (Section 203(k)) [/size]

Summary:
Section 203(k) insurance enables homebuyers and homeowners to finance both the purchase (or refinancing) of a house and the cost of its rehabilitation through a single mortgage - or to finance the rehabilitation of their existing home.

Purpose:
Section 203(k) is one of many FHA programs that insure mortgage loans - - and thus encourage lenders to make mortgage credit available to borrowers who would not otherwise qualify for conventional loans on affordable terms (such as first - time homebuyers) and to residents of disadvantaged neighborhoods (where mortgages may be hard to get).

Section 203(k) fills a unique and important need for homebuyers in another way as well. When buying a house that is need of repair or modernization, homebuyers usually have to follow a complicated and costly process, first obtaining financing to purchase the property, then getting additional financing for the rehabilitation work, and finally finding a permanent mortgage after rehabilitation is completed to pay off the interim loans. The interim acquisition and improvement loans often have relatively high interest rates and short repayment terms. However, Section 203(k) offers a solution that helps both borrowers and lenders, insuring a single, long - term, fixed - or adjustable - rate loan that covers both the acquisition and rehabilitation of a property. Section 203(k) insured loans save borrowers time and money, and also protect lenders by allowing them to have the loan insured even before the condition and value of the property may offer adequate security. Insurance commitments for 17,000 homes were made in FY 1996; the estimated number of homes to be insured under Section 203(k) for FY 1997 is 19,000, and 15,000 for FY 1998. For housing rehabilitation activities that do not also require buying or refinancing the property, borrowers may also consider HUD's Title I Home Improvement Loan program.

Type of Assistance:
Section 203(k) insures mortgages covering the purchase or refinancing and rehabilitation of a home that is at least a year old. A portion of the loan proceeds is used to pay the seller, or, if a refinance, to pay off the existing mortgage, and the remaining funds are placed in an escrow account and released as rehabilitation is completed. The cost of the rehabilitation must be at least $5,000, but the total value of the property must still fall within the FHA mortgage limit for the area. The value of the property is determined by either (1) the value of the property before rehabilitation plus the cost of rehabilitation, or (2) 110 percent of the appraised value of the property after rehabilitation, whichever is less.

Many of the rules and restrictions that make FHA's basic single - family mortgage insurance product (Section 203(b)) relatively convenient for lower income borrowers apply here. But lenders may charge some additional fees, such as a supplemental origination fee, fees to cover the preparation of architectural documents and review of the rehabilitation plan, and a higher appraisal fee. However, unlike other FHA single - family mortgages, Section 203(k) borrowers do not pay an upfront mortgage premium.

Eligible Grantees:
FHA - approved lending institutions - which include many banks, savings and loan associations, and mortgage companies - can make loans covered by Section 203(k) insurance.

Eligible Customers:
All persons who can make the monthly mortgage payments are eligible to apply. Cooperative units are not eligible; individual condominium units may be insured if they are in projects that have been approved by FHA or the Department of Veterans Affairs, or meet certain Fannie Mae guidelines.

Eligible Activities:
The extent of the rehabilitation covered by Section 203(k) insurance may range from relatively minor (though exceeding $5000 in cost) to virtual reconstruction: a home that has been demolished or will be razed as part of rehabilitation is eligible, for example, provided that the existing foundation system remains in place. Section 203(k) - insured loans can finance the rehabilitation of the residential portion of a property that also has non - residential uses; they can also cover the conversion of a property of any size to a one - to four - unit structure. The types of improvements that borrowers may make using Section 203(k) financing include:

structural alterations and reconstruction.
modernization and improvements to the home's function.
elimination of health and safety hazards.
changes that improve appearance and eliminate obsolescence.
reconditioning or replacing plumbing; installing a well and/or septic system.
adding or replacing roofing, gutters, and downspouts.
adding or replacing floors and/or floor treatments.
major landscape work and site improvements.
enhancing accessibility for a disabled person.

making energy conservation improvements.
HUD requires that properties financed under this program meet certain basic energy efficiency and structural standards. However, luxury items and improvements that do not become a permanent part of the property are not eligible uses of a 203(k) loan.

Application:
Applications must be submitted to the local HUD Field Office through an FHA - approved lending institution. HUD's website offers an interactive directory of approved lenders.

Technical Guidance:
Insurance for rehabilitation is authorized under Section 203(k) of the National Housing Act (12 U.S.C. 1709(4k)). Program regulations are at 24 CFR 203.50. This and other FHA programs are administered by the Office of Single - Family Housing in HUD's Office of Housing - Federal Housing Administration. Contact the Director of Single - Family Housing at the nearest HUD field office.

For More Information:
A handbook, Rehab a Home with HUD's 203(k), is available at HUD's website or by mail from HUD. A set of questions and answers about 203(k) loans is also available.

The Federal Housing Administration (FHA), which is part of the Department of Housing and Urban Development (HUD), administers various single family mortgage insurance programs. These programs operate through FHA-approved lending institutions which submit applications to have the property appraised and have the buyer's credit approved. These lenders fund the mortgage loans which the Department insures. HUD does not make direct loans to help people buy homes.

The Section 203(k) program is the Department's primary program for the rehabilitation and repair of single family properties. As such, it is an important tool for community and neighborhood revitalization and for expanding homeownership opportunities. Since these are the primary goals of HUD, the Department believes that Section 203(k) is an important program and we intend to continue to strongly support the program and the lenders that participate in it.

Many lenders have successfully used the Section 203(k) program in partnership with state and local housing agencies and nonprofit organizations to rehabilitate properties. These lenders, along with state and local government agencies, have found ways to combine Section 203(k) with other financial resources, such as HUD's HOME, HOPE, and Community Development Block Grant Programs, to assist borrowers. Several state housing finance agencies have designed programs, specifically for use with Section 203(k) and some lenders have also used the expertise of local housing agencies and nonprofit organizations to help manage the rehabilitation processing.

The Department also believes that the Section 203(k) program is an excellent means for lenders to demonstrate their commitment to lending in lower income communities and to help meet their responsibilities under the Community Reinvestment Act (CRA). HUD is committed to increasing homeownership opportunities for families in these communities and Section 203(k) is an excellent product for use with CRA-type lending programs.

If you have questions about the 203(k) program or are interested in getting a 203(k) insured mortgage loan, we suggest that you get in touch with an FHA-approved lender in your area or the Homeownership Center in your area.

Introduction
Section 10 1 (c) (1) of the Housing and Community Development Amendments of 1978 (Public Law 95557) amends Section 203(k) of the National Housing Act (NHA). The objective of the revision is to enable HUD to promote and facilitate the restoration and preservation of the Nation's existing housing stock. The provisions of Section 203(k) are located in Chapter II of Title 24 of the Code of Federal Regulations under Section 203.50 and Sections 203.440 through 203.494. Program instructions are in HUD Handbook 4240-4. HUD Handbooks may be ordered online from The HUD Compendium or from HUDCLIPS.

203(k) - How It Is Different
Most mortgage financing plans provide only permanent financing. That is, the lender will not usually close the loan and release the mortgage proceeds unless the condition and value of the property provide adequate loan security. When rehabilitation is involved, this means that a lender typically requires the improvements to be finished before a long-term mortgage is made.

When a homebuyer wants to purchase a house in need of repair or modernization, the homebuyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods. The Section 203(k) program was designed to address this situation. The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property. To provide funds for the rehabilitation, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work. To minimize the risk to the mortgage lender, the mortgage loan (the maximum allowable amount) is eligible for endorsement by HUD as soon as the mortgage proceeds are disbursed and a rehabilitation escrow account is established. At this point the lender has a fully-insured mortgage loan.

Eligible Property
To be eligible, the property must be a one- to four-family dwelling that has been completed for at least one year. The number of units on the site must be acceptable according to the provisions of local zoning requirements. All newly constructed units must be attached to the existing dwelling. Cooperative units are not eligible.

Homes that have been demolished, or will be razed as part of the rehabilitation work, are eligible provided some of the existing foundation system remains in place.

In addition to typical home rehabilitation projects, this program can be used to convert a one-family dwelling to a two-, three-, or four-family dwelling. An existing multi-unit dwelling could be decreased to a one- to four-family unit.

An existing house (or modular unit) on another site can be moved onto the mortgaged property; however, release of loan proceeds for the existing structure on the non-mortgaged property is not allowed until the new foundation has been properly inspected and the dwelling has been properly placed and secured to the new foundation.

A 203(k) mortgage may be originated on a " mixed use" residential property provided: (1) The property has no greater than 25 percent (for a one story building); 33 percent (for a three story building); and 49 percent (for a two story building) of its floor area used for commercial (storefront) purposes; (2) the commercial use will not affect the health and safety of the occupants of the residential property; and (3) the rehabilitation funds will only be used for the residential functions of the dwelling and areas used to access the residential part of the property.

Condominium Unit
The Department also permits Section 203(k) mortgages to be used for individual units in condominium projects that have been approved by FHA, the Department of Veterans Affairs, or are acceptable to FNMA under the guidelines listed below.

The 203(k) program was not intended to be a project mortgage insurance program, as large scale development has considerably more risk than individual single-family mortgage insurance. Therefore, condominium rehabilitation is subject to the following conditions:

Owner/occupant and qualified non-profit borrowers only; no investors;
Rehabilitation is limited only to the interior of the unit. Mortgage proceeds are not to be used for the rehabilitation of exteriors or other areas which are the responsibility of the condominium association, except for the installation of firewalls in the attic for the unit;
Only the lesser of five units per condominium association, or 25 percent of the total number of units, can be undergoing rehabilitation at any one time;
The maximum mortgage amount cannot exceed 100 percent of after-improved value.

After rehabilitation is complete, the individual buildings within the condominium must not contain more than four units. By law, Section 203(k) can only be used to rehabilitate units in one-to-four unit structures. However, this does not mean that the condominium project, as a whole, can only have four units or that all individual structures must be detached.

Example: A project might consist of six buildings each containing four units, for a total of 24 units in the project and, thus, be eligible for Section 203(k). Likewise, a project could contain a row of more than four attached townhouses and be eligible for Section 203(k) because HUD considers each townhouse as one structure, provided each unit is separated by a 1 1/2 hour firewall (from foundation up to the roof).

Similar to a project with a condominium unit with a mortgage insured under Section 234(c) of the National Housing Act, the condominium project must be approved by HUD prior to the closing of any individual mortgages on the condominium units.

How the Program Can Be Used
This program can be used to accomplish rehabilitation and/or improvement of an existing one-to-four unit dwelling in one of three ways: To purchase a dwelling and the land on which the dwelling is located and rehabilitate it.
To purchase a dwelling on another site, move it onto a new foundation on the mortgaged property and rehabilitate it.
To refinance existing indebtedness and rehabilitate such a dwelling.

To purchase a dwelling and the land on which the dwelling is located and rehabilitate it, and to refinance existing indebtedness and rehabilitate such a dwelling, the mortgage must be a first lien on the property and the loan proceeds (other than rehabilitation funds) must be available before the rehabilitation begins.

To purchase a dwelling on another site, move it onto a new foundation and rehabilitate it, the mortgage must be a first lien on the property; however, loan proceeds for the moving of the house cannot be made available until the unit is attached to the new foundation.

Eligible Improvements
Luxury items and improvements that do not become a permanent part of the real property are not eligible as a cost rehabilitation. However, the homeowner can use the 203(k) program to finance such items as painting, room additions, decks and other items even if the home does not need any other improvements. All health, safety and energy conservation items must be addressed prior to completing general home improvements.

Required Improvements

All rehabilitation construction and/or additions financed with Section 203(k) 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) Weatherstrip all doors and windows to reduce infiltration of air when existing weatherstripping is inadequate or nonexistent.

b) Caulk or seal all openings, cracks 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.

B. Smoke Detectors. Each sleeping area must be provided with a minimum of one (1) approved, listed and labeled smoke detector installed adjacent to the sleeping area.

Required Appraisals
In order to determine the maximum mortgage amount, the 203(k) valuation analysis consists of two separate determinations of value.

A. As-is Value. A separate appraisal (Uniform Residential Appraisal Report) may be required to determine the as-is value. However, the lender may determine that an as-is appraisal is not feasible or necessary. In this instance, the lender may use the contract sales price on a purchase transaction, or the existing debt on a refinance transaction, as the as-is value, when this does not exceed a reasonable estimate of value.

Further, on a refinance transaction, when a large amount of existing debt (i.e., first and second mortgages) suggests that the borrower has little or no equity in the property, the lender must obtain a current as-is appraisal on which to base the estimated as-is value.

On a refinance, the borrower may have substantial equity in the property to assure that no further down payment is required on the new loan amount. In some cases, the borrower will not have an existing mortgage on the property. In this case, the lender should obtain some comparables from a real estate agent/ broker to estimate an approximate as-is value of the property.

Another way of establishing the as-is value is to obtain a copy of the local jurisdiction tax valuation on the property.

B. Value After Rehabilitation. The expected market value of the property is determined upon completion of the proposed rehabilitation and/or improvements.

For a HUD-owned property an as-is appraisal is not required and a DE lender may request the HUD Field Office to release the outstanding HUD Property Disposition appraisal on the property to the lender to establish the maximum mortgage for the property. The HUD appraisal will be considered acceptable for use by the lender if. (1) it is not over one year old prior to bid acceptance from HUD; and (2) the sales contract price plus the cost of rehabilitation does not exceed 110 percent of the " As Repaired Value" shown on the HUD appraisal. If the HUD appraisal is insufficient, the DE Lender may order another appraisal to assure the market value of the property will be adequate to make the purchase of the property feasible. For a HUD-property, down payment for an owner-occupant or non-profit organization is three percent of the accepted bid price of the property and 100 percent financing on all other costs.

Recently Acquired Properties
Homebuyers who purchase a property with cash can refinance the property using 203(k) within six (6) months of purchase, the same as if the buyer purchased the property with a 203(k) insured loan to begin with. Evidence of interim financing is not required; the mortgage calculations will be done the same as a purchase transaction. Cash back will be allowed to the borrower in this situation less any down payment and closing cost requirement for the 203(k) loan. A copy of the Sales Contract and the HUD-1 Settlement Statement must be submitted to verify the accepted bid price (as-is value) of the property and the closing date.

Architectural Exhibits
The improvements must comply with HUD's Minimum Property Standards (24 CFR 200.926d and/or HUD Handbook 4905.1) and all local codes and ordinances. The homebuyer may decide to employ an architect or a consultant to prepare the proposal. The homebuyer must provide the lender with the appro priate architectural exhibits that clearly show the scope of work to be accomplished. The following list of exhibits are recom mended, but may be modified by the local HUD Field Office as required.

A. A Plot Plan of the Site is required only if a new addition is being made to the existing structure. Show the location of the structure(s), walks, drives, streets, and other relevant details. Include finished grade elevations at the property corners and building corners. Show the required flood elevation.

B. Proposed Interior Plan of the Dwelling. Show where structural or planning changes are contemplated, including an addition to the dwelling. (An existing plan is no longer required.)

C. Work Write-up and Cost Estimate. Any format may be used for these documents, however, quantity and the cost of each item must be shown. Also include a complete description of the work for each item (where necessary). The Rehabilitation Checklist in Appendix 1 of Handbook 4240.4 REV-2 should be used to ensure all work items are considered. Transfer the costs to the Draw Request (form HUD-9746-A).

Cost estimates must include labor and materials sufficient to complete the work by a contractor. Homebuyers doing their own work cannot eliminate the cost estimate for labor, because if they cannot complete the work there must be sufficient money in the escrow account to get a subcontractor to do the work. The Work Write-up does not need to reflect the color or specific model numbers of appliances, bathroom fixtures, carpeting, etc., unless they are nonstandard units.

The consultant who prepares the work write-up and cost estimate (or an architect, engineering or home inspection service) needs to inspect the property to assure: (1) there are no rodents, dryrot, termites and other infestation; (2) there are no defects that will affect the health and safety of the occupants; (3) the adequacy of the existing structural, heating, plumbing, electrical and roofing systems; and (4) the upgrading of thermal protection (where necessary).

Definitions for Use in the 203(k) Program
A. Insurance of Advances. This refers to insurance of the 203(k) mortgage prior to the rehabilitation period. A mortgage that is a first lien on the property is eligible to be endorsed for insurance following mortgage loan closing, disbursement of the mortgage proceeds, and establishment of the Rehabilitation Escrow Account.

The mortgage amount may include funds for the purchase of the property or the refinance of existing indebtedness, the costs incidental to closing the transaction, and the completion of the proposed rehabilitation. The mortgage proceeds allocated for the rehabilitation will be escrowed at closing in a Rehabilitation Escrow Account.

B. Rehabilitation Escrow Account. When the loan is closed, the proceeds designated for the rehabilitation or improvement, including the contingency reserve, are to be placed in an interest bearing escrow account insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). This account is not an escrow for the paying of real estate taxes, insurance premiums, delinquent notes, ground rents or assessments, and is not to be treated as such. The net income earned by the Rehabilitation Escrow Account must be paid to the mortgagor. The method of such payment is subject to agreement between mortgagor and mortgagee. The lender (or its agent) will release escrowed funds upon completion of the proposed rehabilitation in accordance with the Work Write-Up and the Draw Request (Form HUD-9746,A).

C. Inspections. Performed by HUD-approved fee inspectors or on the HUD-accepted staff of the DE lender. The fee inspector is to use the architectural exhibits in order to make a determination of compliance or non-compliance. When the inspection is scheduled with a payment, the inspector is to indicate whether or not the work has been completed. Also, the inspector is to use the Draw Request form (Form HUD-9746-A). The first draw must not be scheduled until the lender has determined that the applicable building permits have been issued.

D. Holdback. A ten (10) percent holdback is required on each release from the Rehabilitation Escrow Account. The total of all holdbacks may be released only after a final inspection of the rehabilitation and issuance of the Final Release Notice. The lender (or its agent) may retain the holdback for a maximum of 35 calendar days, or the time period required by law to file a lien, whichever is longer, to ensure that no liens are placed on the property.

E. Contingency Reserve. At the discretion of the HUD Field Office, the cost estimate may include a contingency reserve if the existing construction is less than 30 years old, or the nature of the work is complex or extensive. For properties older than 30 years, the cost estimate must include a contingency reserve of a minimum of ten (10) percent of the cost of rehabilitation; however, the contingency reserve may not exceed twenty (20) percent where major remodeling is contemplated. If the utilities were not turned on for inspection, a minimum fifteen (15) percent is required. If the scope of work is well defined and uncomplicated, and the rehabilitation cost is less then $7500, the lender may waive the requirement for a contingency reserve.

The contingency reserve account can be used by the borrower to make additional improvements to the dwelling. A Request for Change Letter must be submitted with the applicable cost estimates. However, the change can only be accepted when the lender determines: (1) It is unlikely that any deficiency that may affect the health and safety of the property will be discovered; and (2) the mortgage will not exceed the appraised value of the property less the statutory investment requirement. If the mortgage exceeds the appraised value less the statutory investment, then the contingency reserve must be paid down on the mortgage principal. If a borrower feels that the contingency reserve will not be used and he wishes to avoid having the reserve applied to reduce the mortgage balance after issuance of the Final Release Notice, the borrower may place his own funds into the contingency reserve account. In this case, if monies are remaining in the account after the Final Release Notice is issued, the monies may be released back to the borrower.

If the mortgage is at the maximum mortgage limit for the area or for the particular type of transaction, but a contingency reserve is necessary, the contingency reserve must be placed into an escrow account from other funds of the borrower at closing. Under these circumstances, if the contingency reserve is not used, the remaining funds in the escrow account will be released to the borrower after the Final Release Notice has been issued.

F. Mortgage Payment Reserve. Funds not to exceed the amount of six (6) mortgage payments (including the mortgage insurance premium) can be included in the cost of rehabilitation to assist a mortgagor (whether a principal residence or an investment property) when the property is not occupied during rehabilitation. The number of mortgage payments cannot exceed the completion time frame required in the Rehabilitation Loan Agreement. The lender must make the monthly mortgage payments directly from the interest bearing reserve account. Monies remaining in the reserve account after the Final Release Notice must be applied to the mortgage principal.

G. Approval of Non-Profit Agencies. A non-profit agency, before it can be approved as an eligible mortgagor and obtain the same mortgage amount as available to owner-occupants on Section 203(k) mortgages, must demonstrate its experience as a housing provider to HUD and meet all other requirements described in HUD Handbook 4155.1 REV-4, paragraphs 1-5. It must also be able to provide satisfactory evidence that it has the financial capacity to purchase the properties.

Maximum Mortgage Amount
The mortgage amount, when added to any other existing indebtedness against the property, cannot exceed the applicable loan-to-value ratio and maximum dollar amount limitations prescribed for similar properties under Section 203(b). The Mortgage Payment Reserve is considered a part of the cost of rehabilitation for determining the maximum mortgage amount.

A. Maximum Mortgage Calculation. The value is defined as the lesser of:

1) The as-is value of the property before rehabilitation plus the cost of rehabilitation; or

2) 110 percent of the expected market value of the property upon completion of the work.

Principal Residence (Owner-Occupant) & HUD Approved Non-Profit Organization. For purchases with 203(k) financing: the maximum mortgage amount is to be based upon the HUD estimate of value in 1) or 2) above, less the statutory investment requirement. For refinances under the 203(k) program: the maximum mortgage amount is to be based upon 97/95/90 percent of the HUD estimate of value in 1) or 2) above.

B. Cost of Rehabilitation. Expenses eligible to be included in the cost of rehabilitation are materials, labor, contingency reserve, overhead and construction profit, up to six (6) months of mortgage payments, plus expenses related to the rehabilitation such as permits, fees, inspection fees by a qualified home inspector, licenses and consultant and/or architectural/engineering fees. The cost of rehabilitation may also include the supplemental origination fee which the mortgagor is permitted to pay when the mortgage involves insurance of advances, and the discounts which the mortgagor will pay on that portion of the mortgage proceeds allocated to the rehabilitation.

C. Exemption of the Market Value Limitation. The 203(k) regulations allow for a waiver of the market value limitation, which allows the appraiser to go outside the targeted area to obtain the value of comparable properties. Such requests must be forwarded to the Assistant Secretary of Housing-Federal Housing Commissioner at the HUD Headquarters.

Requests must include documentation that the following conditions are present:

1) The property is located within an area which is subject to a community sponsored program of concentrated redevelopment or revitalization (See 24 CFR Part 220).

2) The market value loan limitation prevents the use of the program to accomplish rehabilitation in the subject area.

3) The interests of the borrower and the Secretary of HUD are adequately protected.

D. Solar Energy Increase. The mortgage is eligible for an increase of up to 20 percent in the maximum insurable mortgage amount if such an increase is necessary for the installation of solar energy equipment.

The solar energy system's contribution to value will be limited by its replacement cost or by its effect on the value of the dwelling.

E. Energy Efficient Mortgage Program. Under the FHA EEM Program, a borrower can finance into the mortgage 100 percent of the cost of eligible energy efficient improvements, subject to certain dollar limitations, without an appraisal of the energy improvements and without further credit qualification of the borrower. To be eligible for inclusion into the mortgage, the energy efficient improvements must be " cost effective," i.e., the total cost of the improvements (including maintenance costs) must be less than the total present value of the energy saved over the useful life of the improvements. The cost of any improvement to the property that will increase the property's energy efficiency and that is determined to be " cost effective" is eligible for financing into the mortgage and its cost may be added to the mortgage amount up to the greater of:

1) 5 percent of the property's value (not to exceed $8000) or,

2)$4000.

" Cost effective" means that the total cost of the improvements, including any maintenance costs, is less than the total present value of the energy saved over the useful life of the energy improvement. The FHA maximum loan limit for the area may be exceeded by the cost of the energy efficient improvements. However, the entire mortgage cannot exceed 110 percent of the value of the property

The cost of the energy improvements and the estimate of the energy savings must be determined based upon a physical inspection of the property by a home energy rating system (HERS) or energy consultant. For a 203(k) loan, the entire cost of the HERS or the energy consultant can be included in the mortgage.

On new construction (an addition or new building on an existing foundation), the energy improvement must be over and above those required for compliance with the current FHA energy conservation standards for new construction. The estimate of the energy savings in new construction must be based upon a comparison of plans and specification of the house with the additional energy saving improvements to those of the basic house which complies with the current FHA energy conservation standards. Presently, these standards are those of the 1992 CABO Model Energy Code (MEC).

The energy inspection of the property must be performed prior to completion of the work writeup and cost estimate to assure there is no duplication of work items in the mortgage. After the completion of the