[Calclg-l] HUD Section 203K loan program might help to rehabilitate historic and other properties

[Schulz, Jeanette]

Howdy to all and good wishes for a Happy and Prosperous 2008,

 

Here is information for an indirect incentive for single family home
owners or potential owners.   While it does not provide direct funding
for rehabilitation, in certain situations it might help ease financial
burdens in obtaining mortgage loans for rehabilitation.   There are
specific requirements and limits, but every little bit helps and it
could possibly make a difference to rehabilitate a deteriorated property
and improve a neighborhood.

Loans are not given by HUD, but rather by lenders who have agreed to be
part of the program and then HUD insures the loan; your local HUD office
can provide the list of lenders.  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 web site about the program is:

 

http://www.hud.gov/offices/hsg/sfh/203k/203kabou.cfm

 

 

Here is a brief summary of how the program works:

 

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.

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 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. 

It might be possible to identify properties that may be eligible for a
203K and to mention this option, especially if the home is starting to
be in need of major repairs, etc. 

 

Jeanette Schulz, MA

Staff, Architectural Review Unit

Office of Historic Preservation

Department of Parks and Recreation

1416 Ninth St,  Room 1442

Sacramento, CA 95814

916.653.2691

916.653.9824 fax

www.ohp.parks.ca.gov

 

 

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